Does voluntary environmental, social, and governance disclosure impact initial public offer withdrawal risk?

Abstract

Despite much research now being published on Environmental, Social, and Governance (ESG) investments and Initial Public Offerings (IPOs) withdrawal risk, there appears to be a lack of evidence on the prospective IPO withdrawal risk associated with voluntary disclosure of ESG policies. This paper investigates the influence of ESG disclosure on IPO withdrawal by comparing voluntary ESG disclosure to conventional IPOs in the international market. A large data set is employed here, containing 33,535 failed and successful IPOs from 1995 to 2019 from several nations with their own legal systems, cultural norms, and economic systems. The findings reveal that voluntary disclosure of ESG practices does significantly reduce the likelihood of an IPO withdrawal, by as much as 48%. These findings strongly suggest that organizations engaged in ESG activities perceive voluntary disclosure as an incentive, to adhere to social expectations. Consequently, reducing the asymmetry of information between IPO participants minimizes the withdrawal risk these companies face, hence diminishing doubts about their legitimacy. The results have consequences for IPO businesses, investors, researchers, and regulators.