Textual Signals in Indian IPOs: Prospectus Language, Investor Demand, and Underpricing

Abstract

We study whether the language of Indian IPO prospectuses affects investor demand and first-day underpricing. Using Red Herring Prospectuses for IPOs issued between 2006 and 2025, we apply two textual approaches from prior literature: Hanley and Hoberg’s standard-versus-informative content framework, and Loughran and McDonald’s senti ment measures, for both the full prospectus and the Risk Factors section. The results show that prospectus language matters mainly through investor demand. More standard language in the full prospectus is associated with lower total and QIB subscription. Neg ative language is associated with higher total and retail subscription, while legal language is associated with lower subscription across investor groups. In the Risk Factors section, negative and modal language are positively associated with subscription. Most direct e!ects on underpricing weaken once subscription is included, suggesting that disclosure text influences first-day returns primarily by shaping investor participation. The study contributes by extending prospectus-language analysis to the Indian IPO market and showing that textual disclosure functions as a signal in a setting where investor demand plays a central role in IPO outcomes.