The Relationship Between Sustainability Information Represented by ESG and IPO Pricing: Evidence from the US NASDAQ

Abstract

As investor interest in corporate sustainability increases and its influence on socioeconomic development becomes more pronounced, socially responsible investing (SRI) has emerged as a prominent investment trend, especially regarding the potential effects of environmental, social, and corporate governance (ESG) factors on a firm's short-term financial performance and long-term value. The incorporation of sustainability principles into corporate plans has progressively influenced all facets of the enterprise, including the initial public offering (IPO) process. This study examines the influence of sustainability information, as indicated by ESG, on the pricing bias of initial public offerings (IPOs). This research conducts an empirical examination of data from Nasdaq-listed businesses to demonstrate a substantial negative association between ESG performance and IPO pricing bias, indicating that companies with superior ESG performance display reduced price bias during the IPO pricing process. A greater frequency of ESG-related information disclosure aids in alleviating over- or under-valuation resulting from knowledge asymmetry. Investors can more precisely evaluate the market value of companies that exhibit greater transparency and sustainability. This outcome corroborates the 'information asymmetry theory,' which posits that firms can mitigate investor uncertainty and hence diminish pricing bias by comprehensively reporting ESG information. This research study offers a novel perspective on IPO pricing within the capital market, particularly on the growing significance of ESG information in the corporate financing process.