Media Sentiment and IPO Underpricing

47 Pages Posted: 28 Nov 2014 Last revised: 3 Sep 2016

See all articles by Emanuele Bajo

Emanuele Bajo

University of Bologna - Department of Management

Carlo Raimondo

University of Lugano

Date Written: April 21, 2016


During an IPO the issuing firm experiences a dramatic visibility shock caused by a large amount of information released to the public. In this context the media play a pivotal role in conveying information to investors who mostly rely on second-hand and simplified news. We argue that the way in which news is presented may shape retail investors’ beliefs and in turn drive the demand for share and first-day returns. Based on over 2,800 US IPOs and over 27,000 newspaper articles we show that (a) positive tones are positively associated with IPO underpricing; (b) this effect is stronger when news is reported close to the IPO date or (c) by more reputable newspapers. As the article tone and IPO underpricing may be simultaneously driven by unobservable characteristics, we use the journalist’s idiosyncratic tone as an instrument to mitigate endogeneity concerns. However, our findings remain confirmed and robust even after controlling for the sentiment embedded in the SEC filings.

Keywords: IPO, media, underpricing, textual analysis

JEL Classification: G12, G14, L82

Suggested Citation

Bajo, Emanuele and Raimondo, Carlo, Media Sentiment and IPO Underpricing (April 21, 2016). Available at SSRN: or

Emanuele Bajo

University of Bologna - Department of Management ( email )

Via Capo di lucca, 34
Bologna, 40126
+39 051 209 8091 (Phone)
+39 051 246411 (Fax)

Carlo Raimondo (Contact Author)

University of Lugano ( email )

Via Giuseppe Buffi 13
Lugano, Ticino 6900

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