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

57 Pages Posted: 13 Aug 2012 Last revised: 8 Feb 2013

Tim Loughran

University of Notre Dame

Bill McDonald

University of Notre Dame - Mendoza College of Business - Department of Finance

Date Written: February 5, 2013

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

Suggested Citation

Loughran, Tim and McDonald, Bill, IPO First-Day Returns, Offer Price Revisions, Volatility, and Form S-1 Language (February 5, 2013). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=2128766 or http://dx.doi.org/10.2139/ssrn.2128766

Tim Loughran (Contact Author)

University of Notre Dame ( email )

Department of Finance
245 Mendoza College of Business
Notre Dame, IN 46556-5646
United States
574-631-8432 (Phone)
574-631-5255 (Fax)

Bill McDonald

University of Notre Dame - Mendoza College of Business - Department of Finance ( email )

P.O. Box 399
Notre Dame, IN 46556-0399
United States

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