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Media sentiment and IPO underpricing

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  • Bajo, Emanuele
  • Raimondo, Carlo

Abstract

During an IPO the issuing firm experiences a dramatic visibility shock caused by a large amount of information released to the public. In this context the media play a pivotal role in conveying information to investors who mostly rely on second-hand and simplified news. We argue that the way in which news is presented may shape retail investors' beliefs and in turn drive the demand for share and first-day returns. Based on over 2800 US IPOs and over 27,000 newspaper articles we show that (a) positive tones are positively associated with IPO underpricing; (b) this effect is stronger when news is reported close to the IPO date or (c) by more reputable newspapers.

Suggested Citation

  • Bajo, Emanuele & Raimondo, Carlo, 2017. "Media sentiment and IPO underpricing," Journal of Corporate Finance, Elsevier, vol. 46(C), pages 139-153.
    • Handle: RePEc:eee:corfin:v:46:y:2017:i:c:p:139-153
    DOI: 10.1016/j.jcorpfin.2017.06.003
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    More about this item

    Keywords

    Initial public offerings; Underpricing; Media;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media

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