Equal Employment Opportunity Statement and underpricing in Initial Public Offerings

There has been an increasing emphasis from society and capital markets on a firm's Equal Employment Opportunity (EEO) practices. We examine the impact of firms’ EEO statements in the prospectus on their underpricing of Initial Public Offerings (IPOs). Based on the textual analysis of 915 Hong Kong IPO prospectus, this research finds that a strong emphasis on EEO is linked to reduced IPO underpricing. We also find that the effectiveness of EEO signals diminishes in a noisy signalling environment, while a firm's traditional costly signals, including firm size and cornerstone investors, substitute the signal effectiveness of the EEO statements. The study contributes to the signalling theory by highlighting the role of the EEO statement as an effective signal to firm value and elucidating how the signalling effectiveness of EEO varies under different environments and firm-level conditions.