Information Disclosure and IPO Valuation : What Kinds of Information Matter and is More Information Always Better?

Many financial theories emphasize the positive relationship between information disclosure and firm performance. However, disclosure of information can harm a firm if others make strategic use of the information. In this paper, we test the effect of information disclosure on performance. Using a sample of all firms which went through an IPO in the U.S. during the 2001-2003 period, we examine the relationship between different types of information including 1) the specificity of information, 2) the accuracy of information, and 3) the amount of time for information diffusion and the valuation of the IPO firm. We use OLS regression to predict IPO performance including 1) underpricing, 2) percent premium and 3) 3 year cumulative average adjusted returns. Also, we check for a potential curvilinear relationship between the level of information disclosure and IPO performance. We find a negative relationship between information disclosure and underprcing but a positive relationship with percent premium. The implications of these findings and several directions for future research are discussed as well