Terrorist Attacks, Investor Sentiment, and the Pricing of Initial Public Offerings

Using terrorist attacks as exogenous shocks to investor sentiment, we study the impact of investor sentiment on initial public offering (IPO) pricing. IPOs listed within the 30-day period following terrorist attacks, on average, experience lower first-day returns. The documented impact of terrorist attacks is magnified when there is greater IPO valuation uncertainty and when the terrorist attacks are more salient to investors, while mitigated for IPOs “certified” by reputable intermediaries. We also show that the affected IPOs, on average, have more pessimistic media tone in the post-attack/pre-listing day period. The affected IPOs also tend to have lower levels of price revisions, subscriptions, primary share revisions, and total proceeds. Collectively, our findings underscore the salience of investor sentiment in shaping IPO outcomes.

Keywords: terrorist attacks, investor sentiment, IPO pricing

JEL Classification: G10, G11, G14

Suggested Citation: Suggested Citation

Chen, Yangyang and Goyal, Abhinav and Veeraraghavan, Madhu and Zolotoy, Leon, Terrorist Attacks, Investor Sentiment, and the Pricing of Initial Public Offerings (November 3, 2020). Journal of Corporate Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3426970 or http://dx.doi.org/10.2139/ssrn.3426970