Abstract
Recent studies, starting with Hanley Weiss and Hoberg (2010), have used textual analysis to document that voluntary disclosure of information in IPO prospectuses is associated with lower IPO underpricing. We employ an alternative measure and model the issuer’s choice of information disclosure, documenting what factors lead to higher disclosure. We then find that the effect of disclosure on underpricing is asymmetric: firms that disclose more information enjoy lower underpricing, while firms that disclose less are not penalized by higher underpricing. Our measure allows us to account for the endogenous nature of information disclosure. We can therefore argue that the effect of disclosure on underpricing is causal.
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