How Does S-1 Filing Language Affect IPO Failure? (thesis)

Abstract

This paper considers how the language used in the filings associated with an initial public offering (IPO) might predict the ultimate failure of an IPO. In part one of the study, I used qualitative methods to examine the language used in the S-1 business section for a set of failed IPO firms. This examination resulted in the creation of three language themes relevant to the set of failed firms: Innovation Language, Opportunity Language, and Stewardship Language. In part two of the study, I used quantitative methods to explore the effects of each identified language theme on subsequent IPO failure as measured by total return and likelihood of class action litigation. I found that Innovation language did not have a significant effect on either measure of IPO failure. Opportunity Language did not have a significant effect on return failure, but this language was associated with significant changes in litigation failure rates. I also found that increased use of Stewardship Language was associated with higher IPO returns but had no significant effect on a firm's risk of litigation. This paper contributes to the existing literature by offering new insights into the relationship between language usage in corporate filings and firm performance.