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The Long-Run Role of the Media: Evidence from Initial Public Offerings

Author

Listed:
  • Laura Xiaolei Liu

    (School of Business and Management, Hong Kong University of Science and Technology, Clear Water Bay, Kowloon, Hong Kong)

  • Ann E. Sherman

    (Department of Finance, DePaul University, Chicago, Illinois 60604)

  • Yong Zhang

    (School of Accounting and Finance, Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong)

Abstract

The unique characteristics of the U.S. initial public offering (IPO) process, particularly the strict quiet period regulations, allow us to explore the effects of media coverage when the coverage does not contain genuine news (i.e., hard information that was previously unknown). We show that a simple, objective measure of pre-IPO media coverage is positively related to the stock's long-term value, liquidity, analyst coverage, and institutional investor ownership. Our results are robust to additional controls for size, to using abnormal or excess media, and to an instrumental variable approach. We also find that pre-IPO media coverage is negatively related to future expected returns, measured by the implied cost of capital. In all, we find a long-term role for media coverage, consistent with Merton's attention or investor recognition hypothesis. This paper was accepted by Brad Barber, finance.

Suggested Citation

  • Laura Xiaolei Liu & Ann E. Sherman & Yong Zhang, 2014. "The Long-Run Role of the Media: Evidence from Initial Public Offerings," Management Science, INFORMS, vol. 60(8), pages 1945-1964, August.
    • Handle: RePEc:inm:ormnsc:v:60:y:2014:i:8:p:1945-1964
    DOI: 10.1287/mnsc.2013.1851
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