IPO comment letter responses and stock price volatility in the STAR market

Abstract

The public disclosure of IPO comment letter responses represents a significant institutional innovation within the registration-based IPO system. This study investigates the impact of IPO comment letter responses on post-IPO stock price volatility. Our findings indicate that both the quantity and quality of information in issuer responses are inversely correlated with stock price volatility. Additionally, this impact is pronounced when issuers invest more in R&D or face higher operational risk. Mechanism tests suggest that response information quantity (quality) is positively associated with changes in the information quantity (quality) of final-version prospectuses, while negatively correlated with informed trading and bid-ask spread. Lastly, we observe a diminishing effect of responses on post-IPO stock price volatility as time passes. These findings have implications for issuers to mitigate stock volatility risk and for regulators to advance reforms in the registration-based IPO system.

Keywords

• Comment letter responses
• stock price volatility
• R&D
• prospectus