The Effect of Readability of Listed Company Prospectuses on IPO Breaks: Evidence from the Shanghai Stock Exchange in China

Using text analysis methods, this study analyzed the prospectuses of A-share listed companies on the Shanghai Stock Exchange that went public between 2014 and 2024, retrieved from the SSE website. By constructing readability metrics through an indicator-based approach, the relationship between the readability of Chinese text and the occurrence of initial public offering breaks on the first trading day was examined. The research found that, after controlling for industry and time fixed effects, there was a negative correlation between the readability of listed companies' prospectuses and the incidence of IPO breaks. This relationship was mediated through underwriter behavior. After a series of robustness checks, the above conclusion remained valid. Further research revealed that the degree of negative correlation between prospectus readability and IPO price breaks differed before and after the implementation of the registration-based IPO system, as well as when classified by the nature of listed enterprises. This finding provides a new perspective for research on factors influencing IPO pricing, which is beneficial for regulatory agencies to further standardize the information disclosure content of listed companies' prospectuses and also conducive to the development of capital markets.