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Financial communication in initial public offerings

Financial communication in initial public offerings Purpose – The purpose of this paper is to propose a model of financial communication to investigate the process of communicating risk signals between listed companies and their individual retail investors in initial public offerings (IPOs). Design/methodology/approach – A survey study on individual IPO investors ( n =212) in the Hong Kong Stock Exchange was conducted to examine how risk estimates of individual retail investors were affected by three factors of financial communication, namely organizational trust, organizational reputation and investors’ trust in the media specialists. Structural equation modeling analysis was conducted. Findings – Respondents’ perceived risks of below-target returns and perceived risks of losses of principals were significantly affected by their perceived market risks. Respondents relied significantly on organizational trust to estimate their amounts of target returns and mitigate their perceived risks of losses of principals. Organizational reputation, which could be possibly reinforced by respondents’ trust in the media specialists, could enhance organizational trust. Practical implications – Corporate communications practitioners should pay attention to the effect of perceived market risk on risk estimate. As organizational trust is a significant precondition of risk taking in IPOs, practitioners should rethink the effectiveness of financial communication in which organizational trust, organizational reputation and investors’ trust in the media specialists are interrelated. Originality/value – There is a lack of research in financial communication from the organization-stakeholders perspective. This paper conceptualizes financial communication and provides insights to both scholars and practitioners in corporate communications on how significant factors of financial communication affect risk estimate in the financial market. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Corporate Communications: An International Journal Emerald Publishing

Financial communication in initial public offerings

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
1356-3289
DOI
10.1108/CCIJ-02-2014-0006
Publisher site
See Article on Publisher Site

Abstract

Purpose – The purpose of this paper is to propose a model of financial communication to investigate the process of communicating risk signals between listed companies and their individual retail investors in initial public offerings (IPOs). Design/methodology/approach – A survey study on individual IPO investors ( n =212) in the Hong Kong Stock Exchange was conducted to examine how risk estimates of individual retail investors were affected by three factors of financial communication, namely organizational trust, organizational reputation and investors’ trust in the media specialists. Structural equation modeling analysis was conducted. Findings – Respondents’ perceived risks of below-target returns and perceived risks of losses of principals were significantly affected by their perceived market risks. Respondents relied significantly on organizational trust to estimate their amounts of target returns and mitigate their perceived risks of losses of principals. Organizational reputation, which could be possibly reinforced by respondents’ trust in the media specialists, could enhance organizational trust. Practical implications – Corporate communications practitioners should pay attention to the effect of perceived market risk on risk estimate. As organizational trust is a significant precondition of risk taking in IPOs, practitioners should rethink the effectiveness of financial communication in which organizational trust, organizational reputation and investors’ trust in the media specialists are interrelated. Originality/value – There is a lack of research in financial communication from the organization-stakeholders perspective. This paper conceptualizes financial communication and provides insights to both scholars and practitioners in corporate communications on how significant factors of financial communication affect risk estimate in the financial market.

Journal

Corporate Communications: An International JournalEmerald Publishing

Published: Feb 2, 2015

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