Media coverage and IPO underpricing - NUS Business School
Media coverage and IPO underpricing * Laura Xiaolei Liu Hong Kong University of Science and Technology Laura.email@example.com Ann E. Sherman University of Notre Dame firstname.lastname@example.org Yong Zhang Hong Kong University of Science and Technology email@example.com We document that, conditioned on a positive offer price revision from the midpoint of the initial filing range, one extra piece of media coverage during the filing period for an IPO is associated with about two percentage points greater underpricing. Media coverage during the filing period doubles the adjusted R 2 in price revision regressions, with media coverage positively correlated with the absolute value of price revisions. One extra piece of media coverage generally leads to an additional 2.8% increase in the offer price when the price revision is positive, or to a 1.9% greater decrease if the price revision is negative. Combined with our results on underpricing, it appears that underwriters fully adjust for media coverage when revising the offer price downwards but only partially adjust when the offer price is revised upwards. We find that the positive relationship between media coverage and underpricing is stronger when ex ante uncertainty is greater, and fail to find any relationship between positive media coverage and IPO firms' long run underperformance. Overall, our findings are consistent with theories of underpricing being driven by the need to compensate investors for information acquisition, but are not consistent with investor sentiment or prospect theory explanations. * We would like to thank Henry Blodget, Francesca Cornelli, Sudipto Dasgupta, Paul Gao, Kai Li, Alexander Ljungqvist, Joe Nocera, Jay Ritter, Sabatino (Dino) Silveri, Xuan Tian and seminar participants at Southwestern University of Finance and Economics, Hong Kong University of Science and Technology, Peking University, Tsinghua University and the 2007 China International Conference in Finance (Chengdu, China). All errors are, of course, our own.