Abstract

http://ssrn.com/abstract=890602
 
 

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Media Coverage and IPO Underpricing


Laura Xiaolei Liu


Hong Kong University of Science & Technology

Ann E. Sherman


DePaul University

Yong Zhang


Hong Kong Polytechnic University

October 31, 2009

AFA 2009 San Francisco Meetings Paper

Abstract:     
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, G14

working papers series





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Date posted: March 14, 2006 ; Last revised: November 13, 2011

Suggested Citation

Liu, Laura Xiaolei and Sherman, Ann E. and Zhang, Yong, Media Coverage and IPO Underpricing (October 31, 2009). AFA 2009 San Francisco Meetings Paper. Available at SSRN: http://ssrn.com/abstract=890602 or http://dx.doi.org/10.2139/ssrn.890602

Contact Information

Laura Xiaolei Liu (Contact Author)
Hong Kong University of Science & Technology ( email )
Clear Water Bay, Kowloon
Hong Kong
852 2358 7661 (Phone)
852 2358 1749 (Fax)
Ann E. Sherman
DePaul University ( email )
1 East Jackson Blvd.
Chicago, IL 60604-2287
United States
312-362-5499 (Phone)
Yong Zhang
Hong Kong Polytechnic University ( email )
Hung Hom
Hung Hom
Kowloon, AK HK HK
Hong Kong
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