Investor Relations and IPO Performance
Forthcoming in the Review of Accounting Studies
61 Pages Posted: 19 Jul 2019 Last revised: 22 Jul 2019
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: Suggested Citation