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Initial public offerings have generally been underpriced in the short term. In the primary stock market of China, the phenomenon of severe underpricing has remained a problem for most of the time. This paper made an empirical study of the IPO underpricing in China from a risk factors disclosure perspective. Using IPO data from 2004–2011, we found significant relationship between these risk measures and initial returns. Our results support the view that companies should make not only fully but also meaningful disclosures in the IPO prospectuses.

There are many discussions on such IPO selling mechanisms as book-building, fixed price and auction, but there are few on such underwriting mechanisms as stand-by, best-effort and firm commitment mechanisms. With the adoption of different underwriting methods, market participants will judge the level of offering prices based on the consideration of their own benefits. Therefore offering prices may be affected by different underwriting mechanisms. The firm commitment method is widely used in many developed countries. China has adopted mainly the stand-by method. With the development of China's economy and stock market, China needs to encourage the practice of other kinds of mechanisms.