From words to value: how disclosure specificity and venture capital shape valuation uncertainty

This study examines how the specificity of information disclosed in Form S-1 reduces valuation uncertainty during the initial public offering (IPO) process and how venture capital (VC) involvement shapes disclosure practices and valuation outcomes. We treat IPO underpricing and the likelihood of an upward offer price revision during bookbuilding as proxies for valuation uncertainty. Using United States IPOs from 1995 to 2018 and a novel Named-Entity-Recognition-based measure of disclosure specificity, we find that greater specificity, particularly in financial risk disclosure, is associated with lower valuation uncertainty. VC-backed firms provide less specific disclosure, but VC involvement strengthens the effect of specificity on valuation precision. These findings highlight the importance of disclosure specificity in improving valuation precision and provide policy-relevant evidence supporting regulatory efforts to enhance the informativeness of mandatory filings.