Sustainability Disclosure and IPO Performance: Exploring the Impact of ESG Reporting

Abstract

Investors are increasingly concerned with the sustainability of firms and their impact on global development, resulting in a rise in Socially Responsible Investing (SRI) that considers environmental, social, and governance (ESG) factors. Integrating sustainability into company strategies can affect various aspects of an organization, including IPOs (initial public offerings). Given the growing importance of ESG information disclosure, this study wants to examine the potential effect of an ESG report disclosure on IPO performance, since there are not studies focused on analyzing how ESG factors and IPO performance are correlated. The purpose of this study is to examine how ESG disclosure affects IPO underpricing and increases transparency for stakeholders to reduce information asymmetry. This study explores the impact of disclosing ESG information on IPO underpricing using a sample of 100 European IPOs from 2017 to 2021, with 50 firms disclosing an ESG report prior to the IPO and 50 that did not. The results showed that the publication of a sustainable report before an IPO has a positive effect on underpricing by reducing it. This finding suggests that companies that publish sustainability reports are perceived to be less risky, and investors value ESG disclosure as a tool to reduce the risks associated with ESG issues. The work contributes to the research on firms’ incentives to disclose ESG information. Our study is limited by the size of the sample, which is limited and only focused on European companies; therefore, future studies should consider companies from other parts of the world, and with more data related to IPO performance.

Diversity of Institutional Investors’ Bidding Opinions in Shaping the Sustainability of IPO Performance

“…From the regression results reported in Table 9, it can be seen that there is a significant positive effect of diversity of institutional investors' bid opinions on adjusted first-day returns at the 10% significance level, and the previous empirical results are robust. From the regression results reported in columns ( 4)- (6), it is clear that there is a significant negative effect of diversity of opinions on adjusted stock performance in the medium and long term at either the 5% or 10% significance level. The previous empirical results remain robust.…”

“…In order to understand the impact of diversity of bidding opinions of institutional investors on stock price performance, this paper has been tested using regression analysis based on Equation (6).…”

“…Currently, the literature widely uses environmental, social, and governance (ESG) scores to assess the sustainable development performance of listed companies [3,4]. A higher ESG score is considered indicative of a stronger sustainability profile for the company [5,6]. The sustainability of a company is understood to involve the adoption of business strategies and activities that meet the current needs of the company and its stakeholders while also protecting, preserving, and enhancing the human and natural resources vital for the future [7].…”