Investor Relations and IPO Performance

Forthcoming in the Review of Accounting Studies

61 Pages Posted: 19 Jul 2019 Last revised: 22 Jul 2019

See all articles by Salim Chahine

Salim Chahine

American University of Beirut - Olayan School of Business

Gonul Colak

Hanken School of Economics

Iftekhar Hasan

Fordham University - Gabelli School of Business; Bank of Finland

Mohamad Mazboudi

American University of Beirut

Date Written: July 18, 2019

Abstract

We analyze the value of investor relations (IR) strategies to IPO firms. We find that firms that are less visible and have inexperienced management tend to hire IR consultants prior to the issue date. IR consultants help create positive news coverage before an IPO event as reflected in a more optimistic tone of published media. Their presence is associated with higher underpricing at the IPO date but with lower long-run returns. IR-backed IPOs also exhibit disproportionately higher insiders-related agency problems, as IR-induced higher underpricing tends to occur primarily in IPOs where underwriter and venture capitalist agency conflicts are more severe. These findings suggest that the IR programs of IPO firm are mostly short-term oriented and tend to facilitate the ulterior motives of some insiders (underwriters and venture capitalists) targeting higher first-day returns.

Keywords: Initial public offering; Investor relations; Media; Agency problems; Underwriters; Venture capitalists; Analyst forecasts

JEL Classification: G12; G14; G30; L82

Suggested Citation

Chahine, Salim and Colak, Gonul and Hasan, Iftekhar and Mazboudi, Mohamad, Investor Relations and IPO Performance (July 18, 2019). Forthcoming in the Review of Accounting Studies. Available at SSRN: https://ssrn.com/abstract=3421913 or http://dx.doi.org/10.2139/ssrn.3421913

Salim Chahine (Contact Author)

American University of Beirut - Olayan School of Business ( email )

Bliss Street
Beirut 1107 2020
Lebanon
961-1-374-374 (Phone)

Gonul Colak

Hanken School of Economics ( email )

P.O. Box 479
FI-00101 Helsinki, 00101
Finland

Iftekhar Hasan

Fordham University - Gabelli School of Business ( email )

Rose Hill Campus Bronx
New York, NY 10458
United States

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

Mohamad Mazboudi

American University of Beirut ( email )

Olayan School of Business
PO Box 11-0236 Riad El Solh
Beirut
Lebanon
(961)1350000 (Phone)

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