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Financial communication in initial public offerings: Risk estimate in the interplay of organizational trust, organizational reputation and media influences

Suk-Chong Tong (School of Professional Education and Executive Development, The Hong Kong Polytechnic University, Hong Kong, Hong Kong.)

Corporate Communications: An International Journal

ISSN: 1356-3289

Article publication date: 2 February 2015

Abstract

Purpose

The purpose of this paper is to propose a model of financial communication to investigate the process of communicating risk signals between listed companies and their individual retail investors in initial public offerings (IPOs).

Design/methodology/approach

A survey study on individual IPO investors (n=212) in the Hong Kong Stock Exchange was conducted to examine how risk estimates of individual retail investors were affected by three factors of financial communication, namely organizational trust, organizational reputation and investors’ trust in the media specialists. Structural equation modeling analysis was conducted.

Findings

Respondents’ perceived risks of below-target returns and perceived risks of losses of principals were significantly affected by their perceived market risks. Respondents relied significantly on organizational trust to estimate their amounts of target returns and mitigate their perceived risks of losses of principals. Organizational reputation, which could be possibly reinforced by respondents’ trust in the media specialists, could enhance organizational trust.

Practical implications

Corporate communications practitioners should pay attention to the effect of perceived market risk on risk estimate. As organizational trust is a significant precondition of risk taking in IPOs, practitioners should rethink the effectiveness of financial communication in which organizational trust, organizational reputation and investors’ trust in the media specialists are interrelated.

Originality/value

There is a lack of research in financial communication from the organization-stakeholders perspective. This paper conceptualizes financial communication and provides insights to both scholars and practitioners in corporate communications on how significant factors of financial communication affect risk estimate in the financial market.

Keywords

Acknowledgements

This research was conducted as part of the author’s PhD dissertation. The author would like to acknowledge Professor Ringo Ma and the PhD examination committee for their comments and suggestions. The author also thanks the anonymous reviewers for the valuable feedback on the manuscript.

Citation

Tong, S.-C. (2015), "Financial communication in initial public offerings: Risk estimate in the interplay of organizational trust, organizational reputation and media influences", Corporate Communications: An International Journal, Vol. 20 No. 1, pp. 30-47. https://doi.org/10.1108/CCIJ-02-2014-0006

Publisher

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Emerald Group Publishing Limited

Copyright © 2015, Emerald Group Publishing Limited