Abstract
Despite in recent years the impact of market sentiment on the performance of listing firms has gained increased attention from academics and professionals, a research question that remains uncovered deals with how the retail investor sentiment and attention might impact the IPO pricing in the primary market. This analysis proposes a stochastic frontier model approach on a sample of 412 US firms listed between 2010 and 2016. The main research questions aim at revealing the effects that the number and the sentiment of the Tweets in the 3 months prior to each IPO produce in terms of the distance between the maximum achievable price and the actual offer price of the stocks. Results show that the more favorable the sentiment, the closer the offer price is set to the maximum achievable to the benefit of the issuer; on the contrary, negative sentiments seem to play no effect on the pricing, supporting the idea that investors are net buyers of attention-grabbing news. The number of Tweets shows no effect as well. Few and good is then the desirable attention and sentiment that issuers should wish for their listing firms. Key words: Initial public offering, sentiment, investors’ attention, underpricing, social media.
Highlights
IPOs are naturally affected by information asymmetry problems that increase the difficulties with establishing an appropriate value for the new shares in an untried company (Antón et al, 2011; Xia et al, 2012)
Results show that the more favorable the sentiment, the closer the offer price is set to the maximum achievable to the benefit of the issuer; on the contrary, negative sentiments seem to play no effect on the pricing, supporting the idea that investors are net buyers of attention-grabbing news
The offer price is set to the maximum achievable to the benefit of the issuer; on the contrary, negative sentiments charge a discount with respect to the firm‟s fair price in order to ease the completion of the offer: „few and good’ is the desirable attention and sentiment that issuers should wish for their listing firms in order to mitigate the information asymmetry which naturally affects new listings
Summary
IPOs are naturally affected by information asymmetry problems that increase the difficulties with establishing an appropriate value for the new shares in an untried company (Antón et al, 2011; Xia et al, 2012). Previous literature attempting to draw factors which mitigate the information asymmetry - between the issuer and the underwriter on one side, and between the underwriter and investors on the other side - has surprisingly devoted little attention to the relationship between media information production and IPO valuation (Bajo and Raimondo, 2017). This lack of interest among the scientific community may in part be because such studies combine two, seemingly different, disciplines, that is, mass communication and finance (Kolbeins, 2010).
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