Media Coverage and IPO Underpricing
Laura Xiaolei Liu
Hong Kong University of Science & Technology
Ann E. Sherman
Hong Kong University of Science & Technology (HKUST)
October 31, 2009
AFA 2009 San Francisco Meetings Paper
We document that media coverage before the IPO day significantly relates to IPO underpricing. The relation is asymmetrical: more media articles are associated with more underpricing when the offer price is revised upwards from the midpoint of the initial filing range, while there is no significant relationship between media coverage and underpricing when the offer price is revised downward. Conditioning on positive price revision, one extra piece of media coverage is associated with about two percentage points greater underpricing. The positive relationship between media coverage and underpricing is stronger when ex ante uncertainty is greater. We fail to find any relation between positive media coverage and IPO firms' long run under-performance. Overall, our findings are consistent with theories of underpricing being driven by the need to compensate investors for information acquisition, but are not consistent with investor sentiment or prospect theory explanations. Moreover, we find that recent stock market returns have significant explanatory power when media attention is omitted from the regressions but lose most or all of their significance when media attention is included, raising new questions in the debate over partial adjustment to public information for IPOs.
Number of Pages in PDF File: 38
Keywords: Role of media in finance, IPO, media coverage, underpricing, private information
JEL Classification: G32, G24, G14working papers series
Date posted: March 14, 2006 ; Last revised: November 13, 2011
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