Soft Strategic Information and IPO Underpricing

32 Pages Posted: 18 Nov 2013

See all articles by James C. Brau

James C. Brau

Brigham Young University

Jim Cicon

University of Central Missouri

Grant Richard McQueen

Brigham Young University - Department of Business Management

Date Written: October 30, 2012

Abstract

Using content analysis we measure the impact of soft information, derived from words in IPO registration documents, on IPO pricing efficiency. First, using 2,298 U.S. IPOs from 1996 to 2008, we find that an IPO document’s strategic tone correlates positively with the stock’s first-day return; more frequent usage of positive and/or less frequent usage of negative strategic words lead to more IPO underpricing. Second, we find that an IPO document’s strategic tone is negatively correlated with the stock’s long-run return. Together, these findings imply that investors initially misprice soft information in registration statements, which mispricing is eventually corrected. Additionally, we create new content-analysis libraries for strategic words and introduce a survey-based library creation method and word-weighting system.

Keywords: Soft information, IPOs, Textual analysis, Underpricing, Word counts, Content analysis

JEL Classification: G02, G12, G14, G20, G24, D83

Suggested Citation

Brau, James C. and Cicon, James and McQueen, Grant R., Soft Strategic Information and IPO Underpricing (October 30, 2012). Available at SSRN: https://ssrn.com/abstract=2355699 or http://dx.doi.org/10.2139/ssrn.2355699

James C. Brau

Brigham Young University ( email )

TNRB 640
Marriott School
Provo, UT 84602
United States
801-318-7919 (Phone)
801-422-0108 (Fax)

HOME PAGE: http://marriottschool.byu.edu/emp/brau/

James Cicon (Contact Author)

University of Central Missouri ( email )

Warrensburg, MO 64093-5070
United States

Grant R. McQueen

Brigham Young University - Department of Business Management ( email )

TNRB 636
Provo, UT 84602
United States
801-422-3017 (Phone)

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