CSR Disclosure Tone and Investor Signaling in IPO Prospectuses: A Textual Sentiment Analysis in U.S. Capital Markets

ABSTRACT This study examines whether corporate social responsibility (CSR) disclosure in IPO prospectuses functions as a credible sustainability signal and how its credibility influences investor responses in U.S. capital markets. Drawing on a sample of 681 IPOs conducted between 2019 and 2023, we employ textual content analysis to construct a composite CSR disclosure index through principal component analysis (PCA) across four CSR dimensions and capture narrative tone using the financial sentiment lexicon. Our findings reveal a paradoxical pattern: contrary to predictions derived from signaling theory, greater CSR disclosure is positively associated with IPO underpricing, whereas negatively toned CSR narratives are associated with lower underpricing. This latter result is consistent with the candor hypothesis, whereby explicit acknowledgment of risk conveys managerial authenticity to investors. Path analysis further indicates that the tone channel suppresses approximately 23% of the positive disclosure‐volume effect. Heterogeneity analysis shows that these effects are concentrated among large firms, during boom‐market periods, and among NASDAQ‐listed issuers. Overall, these findings contribute to the sustainability reporting and IPO literatures by demonstrating that the credibility and framing of CSR narratives, rather than disclosure volume alone, shape investor perceptions in high‐stakes market settings. Firms, underwriters, and regulators should therefore prioritize the quality, balance, and credibility of sustainability disclosures, not just their volume, when preparing and evaluating IPO prospectuses.