IPO First-Day Returns, Offer Price Revisions, Volatility, and Form S-1 Language

Abstract

Form S-1 is the first SEC filing in the initial public offering (IPO) process. The tone of the S-1, in terms of its definitiveness in characterizing the firm’s business strategy and operations, should affect investors’ ability to value the IPO. We find that IPOs with high levels of uncertain text have higher first-day returns, absolute offer price revisions, and subsequent volatility. Our findings provide empirical evidence for the theoretical models of uncertainty, bookbuilding, and prospect theory.

Keywords: IPOs, first-day returns, bookbuilding, S-1 filings, textual analysis

JEL Classification: G14, G18, G24