Secret Recipe of IPO survival: ESG disclosure and performance

Document Type

Article

Publication Date

2-1-2023

Abstract

While ESG initiation and disclosure may help newly listed companies maintain a social license to operate, mitigate information asymmetry, and attract investor attention, it may impose significant costs on initial public offering (IPO) firms and magnify agency problems. Using a sample of 1102 IPOs issued in the U.S and the ESG data from MSCI between 1999 and 2016, the paper empirically tests the competing hypotheses and examines the influence of ESG disclosure and performance on the survivability of IPOs. We document that (1) voluntary ESG disclosure reduces IPO failure risks and improves long-run performance of IPO; (2) the sooner ESG information is disclosed after the IPO, the greater the likelihood of survival and better long-run performance; and (3) IPOs with better ESG score are less likely to fail, with the impact largely attributable to the company's social and governance performance. Our findings identify new failure risks for IPOs, supply evidence of value-relevance of ESG, and provide practical guidance for managers.

Identifier

85132564851 (Scopus)

Publication Title

Financial Markets Institutions and Instruments

External Full Text Location

https://doi.org/10.1111/fmii.12169

e-ISSN

14680416

ISSN

09638008

First Page

3

Last Page

19

Issue

1

Volume

32

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