The Effects of Ambiguous Information on Initial and Subsequent IPO Returns

Abstract

Newly public companies must disclose significant risk factors in the offering prospectus. These disclosures are examples of “soft” or ambiguous information. Ambiguity models predict that investors will alter their portfolio weights and react to subsequent signals about such information. We test for these effects in a sample of 1,398 initial public offerings (IPOs) using word count ratios between soft and hard information as measures of ambiguity. We find a significant relationship between the soft information on risk and both initial and ex post measures of returns. These results support the view that soft information embeds ambiguity and that it influences investors’ portfolio choices.

Antecedents of Success Rate of Award-Based Crowdfunding: The Case of the “Kickstarter”

“…The detailed degree of project description and the module classification are totally different for different types of projects. In order to measure the fuzzy degree of project introduction, the paper refers to the method that Tom et al (2010) [13] adopted when studying the influences of fuzzy information about risk warning on the income of new stocks; takes the soft information in the module of risks and challenges on Kickstarter as the object to count the word number of text information in the model and the total word number of introduction on the display webpage. The paper measures the uncertainty degree of disclosure information through the proportion of the word number of soft information among the total word number of introduction, and proposes the following hypotheses.…”

An Ontology-Based Information Extraction (OBIE) Framework for Analyzing Initial Public Offering (IPO) Prospectus

“…For instance, Deumes [17] conducted a comprehensive content analysis in order to understand the disclosure of risks and the volatility of the stock price in the future of the firm. Arnold et al [6] used an ambiguity model (based on the occurrences of the keywords) on the risk factors section of the prospectus and discovered that the ambiguous information regarding risks has a negative effect on the investors' decisions. Similar work is available in [2].…”

“…Even though the prior studies have been able to provide insights into these IPO related phenomena, researchers have increasingly realized that the rich implicit knowledge snippets hidden in the textual parts of the IPO prospectus have been largely overlooked [2]. Several recent studies have focused on analyzing information content [6], [7], yet such studies have typically concentrated only on identifying relevant keywords/concepts (e.g. risk, finance, loss, etc.)…”

The differential impact of the bank–firm relationship on IPO underpricing: evidence from China

“…The contents that have been explored include the offering size and the price of its IPO, its use of proceeds (Bradly and Jordan, 2002;Hanley, 1993;Leone et al, 2007), information about product development (Guo et al, 2004), corporate governance (Daily et al, 2005) and litigation risks (Hanley and Hoberg, 2012). More recent studies (e.g., Arnold et al, 2010;Hanley and Hoberg, 2010) also disaggregate the informational contents of the prospectus and provide further evidence. 1 This paper focuses on an important aspect of a firm's prospectus: its loan information.…”

“…They find that the "informative content" but not the "standard content" is most valuable in mitigating underpricing. Arnold et al (2010) divide the prospectus information into "soft" information and "hard" information, finding that companies with more ambiguity in their prospectuses experience higher underpricing at their IPOs.…”