Australia: ASIC report sheds light on investment decisions in IPOs

Services: Corporate & Commercial
Industry Focus: Life Sciences & Healthcare

What you need to know

  • ASIC has released a report on recent research into the factors that institutional and retail investors take into account when deciding whether or not to invest in an initial public offering (IPO).
  • The report shows that institutional and retail investors shared certain characteristics but differed in many respects, including the way they viewed the prospectus, with retail investors reporting that they found prospectuses challenging.
  • Given that ASIC has said it intends to take this research into account in considering how it regulates IPOs, companies looking to list should take note of the report's findings and expect further guidance to issue.

What do investors consider most closely when evaluating an opportunity to invest in an initial public offering (IPO)?

Do institutional and retail investors place different weight on different sources of information?

How well do retail investors really understand prospectuses?

These questions were at the heart of recent research that ASIC has detailed in a report released last month. In Report 540 Investors in initial public offerings,1 ASIC has analysed the findings from inquiries undertaken with both institutional and retail investors, shedding light on each of their approaches to investing in an IPO.

This report on investor decision-making is the latest instalment in ASIC's continued focus on the conduct of IPO activity in Australia, following its scrutiny of due diligence and marketing practices relating to IPOs, and its release of guidance on disclosure requirements for historical financial information.

Companies considering an IPO should take note of ASIC's latest report for two important reasons:

  1. The report provides an indication of the direction that Australia's corporate regulator might take in further scrutinising IPOs in the future, as ASIC has stated that the findings will influence its approach to regulation. The very fact that ASIC has invested in obtaining findings of this kind, focusing on qualitative and behavioural analysis of investor decision-making, is interesting in itself.
  2. The findings offer insights about how institutional and retail investors respond to the various materials they consider when evaluating an investment opportunity, allowing companies the chance to keep those insights in mind as they prepare to launch future IPO campaigns.

ASIC's key findings

ASIC's market research found that institutional and retail investors shared certain characteristics when considering investment opportunities, in that they both:

  • considered the prospectus but also used a variety of other information to assess an IPO, and
  • found it important to have access to, or information on, the management of the IPO issuer.

The research also identified numerous differences between:

  • the way the two groups considered the same material, particularly the prospectus, and
  • the additional information sources that institutional and retail investors were most likely to consider beyond the prospectus.

In the two tables below we summarise the report's key findings about the primary factors for decision-making by institutional and retail investors.

Institutional investors – what do they consider?

Factor for decision-making Summary of findings
Prospectus Institutional investors said they valued the prospectus because it was the main source of information on an IPO and it was a regulated document for which directors and others involved in the IPO have liability.
Management team Institutional investors said speaking to the IPO issuer's management was an essential part of their process of considering an investment opportunity.
Internal analysis Institutional investors rated their internal analysis as being important to assessing the value of an offer. They undertook their own analysis of an IPO, including industry research, financial analysis and investigating the rationale for the IPO.
Investor education report Feedback on the importance of investor education reports varied. Some institutional investors were sceptical of their value, as this information was provided by a sell-side firm and therefore potentially conflicted. Others reported this background information on the industry could be useful.

Retail investors – what do they consider?

Factor for decision-making Summary of findings
Prospectus Retail investors indicated that they found prospectuses to be difficult, primarily because of their length and the complexity of the language used. Most retail investors said they felt comfortable ignoring large sections of the document and only focussed on the parts they considered to be most important, or that which they said they could understand.

The findings also showed that retail investors perceive prospectuses as 'marketing' documents that do not necessarily capture the whole picture of an IPO.

Finally, retail investors found that the risk disclosure made in prospectuses was too generic and not tailored to each company's specific risk environment.
Management team Like institutional investors, retail investors also considered management important and said they wanted more information on the IPO issuer's management team. Some even dug for more information than what was provided in the prospectus and conducted further searches to check whether any of the management team had a history of bad management.
Financial media Retail investors commonly reported that they first heard about an IPO from financial media, such as mainstream media and investment magazines.

Retail investors also viewed financial journalists and commentators as independent and having expertise. The research found that a commentator's supportive view of an IPO could have a powerful influence on a retail investor's decision to invest.
Brokers Most of the retail investors who participated in the research did not use a full-service broker or other paid investment advice; they were 'self-directed'. ASIC's report noted that this is a very different result to quantitative research conducted in 2003, which showed 60% of respondents used a full-service broker.2

More experienced retail investors reported using online brokerage services. Other retail investors indicated they did not trust brokers to provide unbiased information and were not convinced that brokers added sufficient value.

That said, when they could obtain broker reports, a considerable number of retail investors found the analysis useful. Some said the reports were written in plain English and had more relevant analysis than that provided in the prospectus. ASIC noted that the research did not confirm whether these reports were 'broker reports' or simply summaries obtained online.
Online forums and social media The small number of retail investors who said they used online forums considered the advice from other members was 'genuine' (that is, independent) and they valued the opinion of members they perceived as knowledgeable about investments. Those same investors valued online forums for providing different perspectives and links to other information.

A few retail investors said that social media was strongly influential on their decisions to invest in an IPO and found this information through subscribing to Facebook groups set up by an investment advisory service to which they were subscribed.

Similarly, a few retail investors used Twitter to follow what was happening in the market or other sites to follow issuer sentiment.
Company information Some retailers reported that they viewed the issuer's website to find additional information beyond what was available in the prospectus, and to get a 'feel' for the issuer based on the website's appearance and content. A few retailers also said they would contact the IPO issuer directly to see if they were able to obtain further information.
Internet searches Almost all of the retail investors said they undertook internet searches on the issuer of varying detail at some stage in their investment decision-making process. Of the more detailed searches, the retail investors looked for information on the management team of the issuer, its competitors and the issuer's market.
Family, friends, colleagues For some retail investors, a recommendation from a friend, family or colleague was the key or even the sole reason they invested in an IPO.

What can we expect ASIC to do with these findings?

ASIC's primary concern when regulating IPOs is to ensure that investors have sufficient information to make informed decisions.

ASIC noted in this latest report that while it is generally satisfied that its regulation of IPOs is 'largely sound', it intends to enhance its approach to IPOs by monitoring a variety of sources of information available to retail investors.3

Although ASIC conceded that the small sample size of the retail investors (52 individuals) may not reflect the whole population of retail investors in IPOs, it will still consider these findings in issuing further guidance and considering how it regulates IPOs.

Based on the findings from its research, ASIC has indicated that it intends to expand its regulation of IPO activity to add the following to its list of focus areas:

  • encouraging stakeholders to improve access to information on issuer management
  • increasing surveillance of online investor forums and social media
  • providing additional information about the IPO process to retail investors.

Key takeaways for companies looking to undertake IPOs

In light of ASIC's findings on investor decision-making, any company looking to undertake an IPO should:

  • anticipate that ASIC is proactively monitoring not only the prospectus but all forms of marketing, including newsletters, magazines, social media and information included in subscription services dedicated to investing
  • ensure its prospectus complies with ASIC Regulatory Guide 228 which provides guidance on ASIC's view of how to make prospectuses effective disclosure documents – in particular, the 'clear, concise and effective' requirement should be carefully considered against the report's findings that retail investors have difficulty understanding prospectuses
  • ensure any marketing undertaken by a company intending to IPO prior to lodgement of its prospectus with ASIC is limited to 'tombstone' marketing (being very limited information which is permitted under the Corporations Act 2001 (Cth)).

For more than 12 months ASIC has had a consistent focus on IPOs, shining a spotlight on different issues. We have previously written about ASIC's scrutiny of due diligence requirements, social media marketing for IPOs, and of course the changes to the disclosure requirements that came into effect last year. That ASIC is keeping a close eye on IPO activity should be expected, given that Australia has such an active and globally competitive IPO market. In 2016, 133 companies listed on ASX (which is more than the number of companies that listed on various foreign stock exchanges including the Hong Kong Stock Exchange, Shanghai Stock Exchange, Nasdaq and London Stock Exchange), raising a total of $6 billion.[4]

Given that ASIC has said this latest report on investor decision-making will influence how it regulates IPOs in the future, we anticipate this will be a continued area of focus for the regulator and further guidance may issue.


1 ASIC Report 540 Investors in initial public offerings was released on 31 August 2017 and is available at

2 ASIC Report 540 at [155].

3 ASIC Report 540 at [219].

4 ASX Ltd, Full-year 2017 results presentation 17 August 2017, available at

This article is intended to provide commentary and general information. It should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this article. Authors listed may not be admitted in all states and territories

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions