Post-IPO Scrutiny in Hong Kong: Where Investigations Arise in the Current Listing Cycle

Introduction: Why Is Post‑IPO Scrutiny Rising?

Hong Kong reclaimed the global top initial public offering (IPO) spot in 2025, with funds totaling U.S.$37.4 billion being raised, i.e. triple the amount in 2024 (U.S.$10.4 billion^[1]) and seven times the amount in 2023 (U.S.$5.5 billion^[2]). This is in no small part contributed by regulators relaxing listing requirements to increase market competitiveness and attract new issuers in Hong Kong^[3] since 2024.

As gatekeepers, the Securities and Futures Commission (SFC) and The Stock Exchange of Hong Kong (HKEX) have increasingly emphasised listing quality and disclosure accuracy^[4] of the prospectus, as seen from the recent circular issued by the SFC in January 2026.^[5] In view of huge fund inflows into Hong Kong’s capital market, increased regulatory post-IPO scrutiny is expected to protect the interests of public investors. This article examines how structural features of the Hong Kong listing regime, together with the concentration of IPO activity in higher‑risk sectors, give rise to specific accounting and fraud risks that frequently become the focus of post‑IPO scrutiny.

Structural Factors Shaping Post‑IPO Scrutiny

In particular, certain structural features of the Hong Kong listing regime help explain where post‑IPO risks most commonly arise. Under the Hong Kong listing regime, it is common for controlling shareholders to retain substantial ownership and control following an IPO, with a relatively limited share held by third parties as a result of a public float. While this structure is lawful and widely adopted, it can heighten governance and valuation risks where material transactions are conducted between the listed issuer and related parties under the influence of controlling shareholders. In practice, regulatory scrutiny frequently focuses on the commercial substance, pricing and valuation of such transactions, particularly where value is transferred between private and listed entities. These risks often crystallise post‑IPO, when listed capital, reported earnings and asset valuations come under sustained regulatory and market scrutiny.

Major Risks Associated With Top IPO Industries

Of the 119 listings in 2025, the top three industries were industrials (53%), technology, media, and telecom (TMT) (21%), and healthcare (11%). In particular, biotech companies and specialist technology companies constituted a significant portion of these three industries, mostly due to the launch of the Technology Enterprises Channel by HKEX to facilitate the listing applicants under Chapters 18A and 18C of the HKEX Listing Rules.

Below sets out several key accounting issues that lead to fraud risks associated with the top IPO industries, which are expected to be the foci of the post-IPO scrutiny based on prior incidences internationally and Ankura’s own experience:

a. Improper Capitalisation of Research and Development Costs

• Research and development (R&D) expenditure is a core cost for the top IPO sectors, particularly specialist technology, new‑energy industrials, and biotech issuers, many of which operate pre‑ or early‑revenue. Pressure to demonstrate growth and technical progress heightens sensitivity around capitalisation judgments leading to increased asset values (or not).
• While research costs must be expensed, development costs may only be capitalised when strict feasibility criteria are met.^[6] Post‑IPO scrutiny often focuses on premature capitalisation (adding to the asset value of the organisation) of research‑stage costs, weak documentation of feasibility, or continued capitalisation despite project failure.
• In the course of post‑IPO inquiries or investigations, changes in a company’s R&D capitalisation policies or their application over time may also be examined. Inconsistent treatment across projects, frequent revisions, or shifts in judgement coinciding with IPO or post‑IPO reporting periods can raise questions as to whether such changes reflect genuine developments in technical feasibility or business intent, rather than the exercise of judgement influenced by reporting or valuation considerations.
• Miscapitalisation of R&D spend can overstate intangible assets and inflate profits, delaying impairment recognition. Investigations typically involve transaction‑level testing of R&D spend, project documentation review, and interviews to assess contemporaneous judgments.

b. Overvaluation of Intellectual Property and Technology-Related Assets

• Intellectual property (IP) and proprietary technology often represent the core value proposition for specialist technology and biotech IPO issuers, many of which lack long operating histories or stable revenues. As a result, valuation of patents, software, algorithms, and platforms is highly judgmental and sensitive to assumptions around commercialisation and longevity.
• Post‑IPO scrutiny frequently focuses on whether IP valuations were inflated through circular transfers, unreliable third‑party certifications, or failure to reflect technological obsolescence or stalled development. Inadequate impairment testing or reliance on related or unqualified valuers can materially overstate asset values.
• Such misstatements may distort balance sheet strength and valuation narratives, triggering impairment reviews, restatement risk, and regulatory investigation into valuation methodologies and governance over asset recognition.

c. Government Grant and Subsidy Misstatements

• Government grants and subsidies are a significant funding source for industrial, new‑energy, and biotech issuers, particularly those engaged in strategic or research‑intensive activities. These grants are often directly tied to capital expenditure, R&D programmes, or production scale‑up.
• Post‑IPO investigations commonly examine whether grants were correctly recognised and matched to qualifying costs. Risks arise where grants are inappropriately netted against non‑qualifying expenditures, capitalised costs, or operating expenses, or recognised prematurely despite unmet conditions. Weak documentation and decentralised grant management can exacerbate these issues.
• Misapplication in the way grants are accounted for in the books and records of a company can inflate profits and asset values, leading to restatements and focused regulatory scrutiny on internal controls, grant compliance, and financial reporting integrity.

d. Revenue Recognition and Contract‑Driven Manipulation

• Revenue models in technology and biotech sectors often rely on complex, multi‑element contracts involving software licences, IP rights, services, milestones, or royalties. These structures create opportunities for aggressive revenue recognition through contract allocation and timing judgments.
• Post‑IPO scrutiny frequently targets arrangements where disproportionate value is allocated to upfront deliverables, royalties deviate from market norms, or revenue is recognised despite underlying payment or realisation risk. Undisclosed side letters, contingent pricing, or circular transactions via subsidiaries, related parties, distributors, and sub‑suppliers are common investigative triggers.
• Improper revenue recognition can materially inflate earnings and margins, prompting forensic review of contracts, counterparties, and cash receipts, as well as sponsor and auditor escalation where disclosures are called into question.

Other than the above industry-specific fraud risks, the following red flags of fraud commonly linked with IPO firms should continue being the foci of the gatekeepers:

1. Acquisition of assets that are seemingly irrelevant to the company’s primary business nature, and/or the consideration of the assets is far above the market value;
2. Dubious loans, prepayments and deposits granted without sufficient commercial rationale nor prudent due diligence process, or even with significant write-offs in subsequent financial years;
3. Post-listing sales to newly emerging customers, which may suggest undisclosed related-party transactions or other arrangements used to fabricate revenue; and
4. Significant deviation of the use of IPO proceeds as compared to that initially stated in the prospectus.

In light of allegations of fraud and investigations initiated by the financial regulators, companies may face material reputational damages, financial risk of regulatory fines, and share price declines, restrictions to operations, as well as suspensions and delisting.

Closing Thoughts

Given the size and nature of the IPO pipeline in Hong Kong, an increased number of post‑IPO investigations is a foreseeable feature of the current uptick to the number of Hong Kong IPOs. Companies and sponsors should address sector-specific IPO risks promptly throughout the listing process and in advance of the IPO. After going public, management and the board must stay alert to areas susceptible to fraud and respond appropriately to regulatory investigations, where required, to safeguard value and credibility of the IPO companies.

References

[1] “Chinese Mainland and Hong Kong IPO Markets: 2024 Review and 2025 Outlook”, KPMG, 11 December 2024, URL: https://assets.kpmg.com/content/dam/kpmgsites/cn/pdf/en/2024/12/china-hk-ipo-markets-2024-review-and-2025-outlook.pdf

[2] “Market Statistics 2023”, HKEX, 29 December 2023, https://www.hkex.com.hk/-/media/HKEX-Market/Market-Data/Statistics/Consolidated-Reports/Annual-Market-Statistics/FY_2023-Annual-Market-Stat_Eng.pdf

[3] “LCQ3: Facilitating enterprises to list in Hong Kong”, The HKSAR Government, in Press Releases, URL: https://www.info.gov.hk/gia/general/202507/16/P2025071600342.htm#:~:text=In%20September%202024%2C%20the%20HKEX,unique%20characteristics%20of%20relevant%20enterprises., retrieved 14 April 2026

[4] “Sponsors under scrutiny in Hong Kong’s soaring IPO market”, Reed Smith LLP, in Lexology, URL: https://www.lexology.com/library/detail.aspx?g=5a83b156-46a8-4d95-b398-4abac713c351, retrieved 14 April 2026

[5] SFC circular SFO/IS/004/2026 dated 30 January 2026

[6] Hong Kong Accounting Standard (HKAS) 38

^{© Copyright 2026. The views expressed herein are those of the author(s) and not necessarily the views of Ankura Consulting Group, LLC, its management, its subsidiaries, its affiliates, or its other professionals. Ankura is not a law firm and cannot provide legal advice.}