Sustainability Disclosure and IPO Performance: Exploring the Impact of ESG Reporting †

Abstract

Investors are increasingly concerned with the sustainability of firms and their impact on global development, resulting in a rise in Socially Responsible Investing (SRI) that considers environmental, social, and governance (ESG) factors. Integrating sustainability into company strategies can affect various aspects of an organization, including IPOs (initial public offerings). Given the growing importance of ESG information disclosure, this study wants to examine the potential effect of an ESG report disclosure on IPO performance, since there are not studies focused on analyzing how ESG factors and IPO performance are correlated. The purpose of this study is to examine how ESG disclosure affects IPO underpricing and increases transparency for stakeholders to reduce information asymmetry. This study explores the impact of disclosing ESG information on IPO underpricing using a sample of 100 European IPOs from 2017 to 2021, with 50 firms disclosing an ESG report prior to the IPO and 50 that did not. The results showed that the publication of a sustainable report before an IPO has a positive effect on underpricing by reducing it. This finding suggests that companies that publish sustainability reports are perceived to be less risky, and investors value ESG disclosure as a tool to reduce the risks associated with ESG issues. The work contributes to the research on firms’ incentives to disclose ESG information. Our study is limited by the size of the sample, which is limited and only focused on European companies; therefore, future studies should consider companies from other parts of the world, and with more data related to IPO performance.