THE ROLE OF INTANGIBLES DISCLOSURE IN ITALIAN IPOS: AN EXPLORATIVE STUDY ON PRIMARY AND SECONDARY MARKET INVESTORS’ REACTIONS

PURPOSE We study how primary and secondary market investors react to intangibles information disclosed in Italian IPOs. Previous literature on intangibles information disclosure as a determinant of IPO underpricing has reported inconsistent results; moreover, an area that has remained unexplored is to what extent different categories of market investors react to such information disclosure. DESIGN AND METHODOLOGY Based on a sample of firms listed on the Italian Stock Exchange, we employ factor analysis to uncover the most relevant intangible assets disclosed in IPO prospectuses; this information is then included in a series of regressions which read into the reaction of primary and secondary market investors by means of price variations. FINDINGS Primary market investors are found to be more sensitive to information regarding the company’s attitude towards its human capital and to that describing its innovation capacity in terms of IT and R&D investment. Secondary market investors are more sensitive to strategic alliances, research and development, and future plans. RESEARCH LIMITATIONS Our findings can be generalized, but the empirical evidence would be more relevant if tested in different geographical contexts (i.e., Europe and/or the USA). PRACTICAL IMPLICATIONS Our empirical results could help firms be more selective in their disclosure, thus possibly soothing management’s concerns regarding an overly extensive, and therefore risky, dissemination of non-financial information and avoiding them to incur unnecessary costs. SOCIAL IMPLICATIONS Being aware of how the stock market reacts to the information disclosed is crucial in determining new regulations and accounting standards. ORIGINALITY We introduce an unbiased categorization of intangibles variables that supplants the multiple classifications proposed in the literature and we set apart the reaction of primary and secondary market IPO investors to the intangible information disclosure.