What Matters Most? How Tone in Initial Public Offering Filings and Pre-IPO News Influences Stock Market Returns

21 Pages Posted: 24 Sep 2014

See all articles by Stefan Feuerriegel

Stefan Feuerriegel

ETH Zurich

Jonas Schmitz

University of Freiburg

Dirk Neumann

University of Freiburg

Date Written: September 22, 2014

Abstract

Before shares of a company are sold to the general public on a security exchange for the first time, regulatory publication requirements force U.S. firms to file an initial public offering prospectus. While accounting information in IPO filings are closely studied by investors and analysts, research must also examine the textual content of these filings. Thus, we measure the proportion of uncertain language. As a result, this paper provides empirical evidence that soft content is not only a major driver of first-day stock market returns, but also persists in the market up 10 days of trading. However, a much stronger impact on stock market prices comes from the pre-IPO news tone. Interestingly, the more uncertainty words appear in pre-IPO news, the higher the following first-day stock market return. It seems that investors mainly focus on the chances of a company rather than on the risks.

Keywords: initial public offering, filings, information processing, sentiment analysis, text mining

JEL Classification: D81, D82, D84, G12, G14, G24, G32

Suggested Citation

Feuerriegel, Stefan and Schmitz, Jonas and Neumann, Dirk, What Matters Most? How Tone in Initial Public Offering Filings and Pre-IPO News Influences Stock Market Returns (September 22, 2014). Available at SSRN: https://ssrn.com/abstract=2499573 or http://dx.doi.org/10.2139/ssrn.2499573

Stefan Feuerriegel (Contact Author)

ETH Zurich ( email )

Weinbergstr. 56/58
Zürich, 8092
Switzerland

HOME PAGE: http://www.mis.ethz.ch/

Jonas Schmitz

University of Freiburg

Fahnenbergplatz
Freiburg, D-79085
Germany

Dirk Neumann

University of Freiburg ( email )

Albert-Ludwigs-Universität Freiburg, Wirtscha.inf.
Kollegiengebäude II, Platz der Alten Synagoge
Freiburg im Breisgau, 79098
Germany

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