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Is there useful information in the ‘use of proceeds’ disclosures in IPO prospectuses?


  • The author acknowledges the helpful comments from the Editor, Steven Cahan, and an anonymous Referee and helpful comments on earlier drafts of the manuscript from Joy Begley, Pete Clarkson, Asher Curtis, Elizabeth Demers, David Emanuel, Pascal Frantz, Kin Lo, Zoltan Matolcsy, Dawn Matsumoto, Majella Percy, Shiva Rajgopal, Terry Shevlin, Peter Wells and Mike Willenborg and the comments of seminar participants at INSEAD, London School of Economics, Monash University, the University of British Columbia, the University of New South Wales, the University of Technology, Sydney, the University of Washington and participants at the American Accounting Association Washington Meeting 2006 and the Accounting and Finance Association of Australia and New Zealand Conference 2008. The author gratefully acknowledges the research assistance provided by Alan McCrystal and Valmikeya Nagri and funding from the Intellectual Property Research Institute of Australia at the University of Melbourne, the intellectual property data supplied by Intellectual Property Research Institute of Australia in collaboration with IP Australia and the market data supplied by Securities Industry Research Centre of Asia-Pacific (SIRCA) on behalf of the data provider the Australian Stock Exchange.


This study contributes evidence on the valuation relevance of the ‘use of proceeds’ disclosure in the initial public offering (IPO) prospectus. This article develops a classification of ‘use of proceeds’ disclosures that aims to capture information embedded in the disclosures relating to the purpose (growth, production, financing) and amount committed to specific assets. These measures are then related to IPO underpricing, survival prediction and expected and realised prospects of the IPOs. The results suggest the ‘use of proceeds’ disclosure categories have incremental information over other sources of information for underpricing, for predicting firm survival and in the case of some disclosure categories, for investors’ evaluation of the firms’ prospects and risks in the early years after listing.