The authors thank the Robins School of Business for generous research support and assistance with purchases of IPO data. We also thank an anonymous referee for many helpful comments as well as Tim Burch, Michael Gombola, Jeff Harris, Xi Li, Jim Overdahl, Michel Robe, George Wang, and seminar participants at the Commodity Futures Trading Commission and the University of Richmond. Eli Bauman, Neil Biller, Jim Geoghegan, and Lili Velinova provided very capable research assistance and data collection. All errors are our own responsibility.
The Effects of Ambiguous Information on Initial and Subsequent IPO Returns
Article first published online: 6 DEC 2010
© 2010 Financial Management Association International
Volume 39, Issue 4, pages 1497–1519, Winter 2010
How to Cite
Arnold, T., Fishe, R. P.H. and North, D. (2010), The Effects of Ambiguous Information on Initial and Subsequent IPO Returns. Financial Management, 39: 1497–1519. doi: 10.1111/j.1755-053X.2010.01120.x
- Issue published online: 6 DEC 2010
- Article first published online: 6 DEC 2010
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.