Prospectus disclosure and the stock market performance of initial public offerings (IPOs): the case of Thailand

Abstract

This study examines if the prospectus disclosure of the motives for an initial public offering (IPO) explains the long-run performance of equity issuers using hand-collected data for 245 IPOs from the Stock Exchange of Thailand (SET), and also the Market for Alternative Investments (MAI), in the 12-year period between 2001 and 2012. The stock returns of the IPOs were investigated using cumulative abnormal return (CAR) and buy-and-hold abnormal return (BHAR). The authors find a significant impact for the level of use-of-proceeds disclosure on IPO underpricing, and further that the ex-ante uncertainty and signalling hypotheses explain the IPO underpricing phenomenon in the Thai IPO market. Furthermore, Thai firms citing investment needs show significant positive abnormal returns after the offering, but issuers that state general corporate purposes and debt payments motives underperform. The authors provide evidence that the offering size and bull-market conditions significantly affect the IPO pricing and the strategic disclosure of information in the prospectus. Our results are robust, having been subjected to a wide range of sensitivity checks. Keywords: Prospectus disclosure, IPO performance, Thailand. JEL Classification: G14, G30, G32

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