Natural Disasters, Investor Uncertainty and the Cost of Going Public

Abstract

Pricing in initial public offerings (IPOs) reflects both firm fundamentals and the quality of information available to investors at the time of issuance. While prior research shows that macroeconomic crises and broad financial shocks influence IPO valuation, less is known about how localized disruptions affect the information environment in which offer prices are formed. This study examines whether exposure to natural disasters during the issuance month alters the bookbuilding process and subsequent market outcomes. We combine county-level disaster records from the SHELDUS database with a sample of 1,263 U.S. IPOs to identify geographically concentrated and plausibly exogenous shocks to investor attention and valuation certainty. IPOs exposed to recent disasters exhibit more negative offer price revisions and lower first-day returns, consistent with more conservative pricing during bookbuilding rather than temporary sentiment-driven reversals in secondary markets. These effects are strongest for smaller firms and for IPOs with wider indicative price ranges, settings typically associated with greater information asymmetry and valuation dispersion. We further show that downward adjustments made at issuance are not fully offset in aftermarket trading, implying a persistent increase in the effective cost of equity capital for affected issuers. By treating natural disasters as localized uncertainty shocks, the analysis clarifies how short-lived environmental events influence primary-market price formation, investor behavior, and firms’ access to public equity markets. More broadly, the findings highlight the sensitivity of capital-raising outcomes to disruptions in the information and governance mechanisms that underpin IPO pricing.

About the speaker

Jonathan Batten is an established professor of finance and researcher, as well as an editor (Finance Research Letters, Risk Management) and a former editor of prominent scientific journals (Emerging Markets Review, Journal of International Financial Markets, Institutions & Money).

The host at the School of Economics and Business is Igor Lončarski PhD.

We anticipate your attendance at the seminar with pleasure and appreciate your participation.