The Effects of IPO Marketing Breadth: Evidence From Weather-Induced Variation in Roadshow Prospectus Distribution

Abstract

Using the number of prospectuses underwriters distribute during the roadshow as a novel measure of IPO marketing breadth, we show that marketing breadth negatively relates to expected rationing risk and positively relates to issuer bargaining power. Two-stage least squares estimates exploiting weather-induced travel disruptions indicate that IPO marketing breadth increases price revisions and underpricing, with the benefits to marketing being roughly evenly split between issuers and initial investors. Underwriters benefit from higher fees, while issuers garner a variety of longer-run benefits: IPO marketing breadth reduces post-IPO information asymmetry, increases post-IPO investor awareness, and improves long-run stock performance.

Keywords: Initial Public Offerings; IPO Marketing Breadth; IPO Roadshows; Underwriter Information Dissemination; Weather Disruptions

JEL Classification: G20, G24, G30