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Does intellectual capital disclosure reduce an IPO's cost of capital? The case of underpricing

Does intellectual capital disclosure reduce an IPO's cost of capital? The case of underpricing Purpose – The pivotal aim is to examine the association between underpricing and intellectual capital (IC) disclosures amongst Singapore initial public offerings (IPOs). A secondary aim is to elaborate on the research by Bukh into IC disclosures by Danish IPOs. Design/methodology/approach – Using a theoretical framework based on the notions of ex ante uncertainty and information asymmetry, the study examines empirically 334 Singapore IPO prospectuses between 1997 and 2004. Findings – Contrary to theoretical predictions and much of the prior financial disclosure/underpricing research, we find a positive association between underpricing and the extent of IC disclosure. Additional sub‐sample analysis shows that the positive association holds across the market's broader industry base, but is strongest amongst IPOs that are heavily reliant on IC resources. Research limitations/implications – The research studies Singapore IPOs only, within a specific timeframe (1997‐2004), and concentrates on a single disclosure mechanism (though the one considered most significant to an IPO). Practical implications – Empirical analysis suggests issuers may not use IC disclosures effectively to reduce their cost of capital. Rather, they use IC disclosures as a strategic tool to complement underpricing. Further, findings suggest policymakers may need to introduce minimal uniform IC disclosure requirements to prevent a speculative IPO market from developing as the significance of IC increases. Originality/value – Study is the first to provide empirical evidence of the association between IC disclosures and underpricing. Further, it is one of the very first to examine the consequences of IC disclosures and thereby provide a new path for future IC disclosure research. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Intellectual Capital Emerald Publishing

Does intellectual capital disclosure reduce an IPO's cost of capital? The case of underpricing

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References (72)

Publisher
Emerald Publishing
Copyright
Copyright © 2007 Emerald Group Publishing Limited. All rights reserved.
ISSN
1469-1930
DOI
10.1108/14691930710774885
Publisher site
See Article on Publisher Site

Abstract

Purpose – The pivotal aim is to examine the association between underpricing and intellectual capital (IC) disclosures amongst Singapore initial public offerings (IPOs). A secondary aim is to elaborate on the research by Bukh into IC disclosures by Danish IPOs. Design/methodology/approach – Using a theoretical framework based on the notions of ex ante uncertainty and information asymmetry, the study examines empirically 334 Singapore IPO prospectuses between 1997 and 2004. Findings – Contrary to theoretical predictions and much of the prior financial disclosure/underpricing research, we find a positive association between underpricing and the extent of IC disclosure. Additional sub‐sample analysis shows that the positive association holds across the market's broader industry base, but is strongest amongst IPOs that are heavily reliant on IC resources. Research limitations/implications – The research studies Singapore IPOs only, within a specific timeframe (1997‐2004), and concentrates on a single disclosure mechanism (though the one considered most significant to an IPO). Practical implications – Empirical analysis suggests issuers may not use IC disclosures effectively to reduce their cost of capital. Rather, they use IC disclosures as a strategic tool to complement underpricing. Further, findings suggest policymakers may need to introduce minimal uniform IC disclosure requirements to prevent a speculative IPO market from developing as the significance of IC increases. Originality/value – Study is the first to provide empirical evidence of the association between IC disclosures and underpricing. Further, it is one of the very first to examine the consequences of IC disclosures and thereby provide a new path for future IC disclosure research.

Journal

Journal of Intellectual Capital – Emerald Publishing

Published: Jul 31, 2007

Keywords: Pricing; Intellectual capital; Disclosure; Cost of capital; Singapore; Denmark

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