Title: Reported risk categories in the prospectus and IPO valuation in Indian stock market: an empirical investigation

Authors: Krishan Lal Grover; Pritpal Singh Bhullar; Seshadev Sahoo

Addresses: Department of Commerce, Sri Guru Hari Singh College, Jiwan Nagar, Sirsa (Haryana), India ' University Business School, Maharaja Ranjit Singh Punjab Technical University, Bathinda, India ' Indian Institute of Management, Lucknow, 226013, India

Abstract: The current study aims to identify the risk categories that may impact initial public offering (IPO) performance. It also investigates the impact of selected mutually exclusive risk categories on IPO performance. The current analysis examined 131 IPOs from 2011 to 2020 on the main board of the NSE in India. We gathered all the risk statements from the issuers' IPO prospectuses and analysed their substance. To standardise and accept these categories across the research fraternity, a five-point Likert scale was established. Using principal component analysis, we find six broad categories of risk factors have been disclosed by the IPO firms, i.e., operational, compliance, management, equity, investment, technology and innovation risk. The results suggest that corporations prioritised financial soundness (liquidity position) over equity risk when disclosing investment risk. We also find that IPO firms with higher operational risk are more underpriced than firms with lower operational risk.

Keywords: operational risk; underpricing; compliance risk; equity risk; initial public offering; IPO prospectus.

DOI: 10.1504/AAJFA.2024.137364

Afro-Asian Journal of Finance and Accounting, 2024 Vol.14 No.2, pp.297 - 316

Received: 23 Oct 2021
Received in revised form: 14 Jun 2022
Accepted: 23 Jun 2022
Published online: 14 Mar 2024 *

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