The Relationship Between Corporate ESG Ratings and Initial Public Offering Pricing Efficiency

Abstract

This paper takes the United States market as its research object to explore the relationship between the Environmental, Social, and Governance (ESG) ratings of enterprises and the pricing efficiency of Initial Public Offerings (IPOs). Traditional IPO literature mostly explains the phenomenon of underpricing on the first day from the aspects of information asymmetry, underwriter reputation and market sentiment. Yet, the role of ESG, as an emerging non-financial factor, remains underexplored. This paper analyzes the potential impact of ESG on pricing efficiency from three perspectives: information asymmetry, investor demand, and institutional certification. It also examines the moderating effects of external guarantees and rating differences. The research shows that ESG disclosure can enhance transparency, boost investor confidence, and reduce underpricing under certain conditions. However, greenwashing and rating inconsistency may weaken its signaling function, leading to resource misallocation. This paper expands the theoretical framework of IPO pricing efficiency and provides empirical references and practical inspirations for regulatory authorities, issuers and investors when utilizing ESG information.