Abstract
This paper explores the potential marketing benefits of going public and of IPO underpricing. We identify an empirical setting which allows us to examine the impact of IPO underpricing on a direct and timely measure of the issuing firms' product market demand: visitors to B2C Internet companies' websites. If underpricing attracts media attention and creates valuable publicity, we expect an increase in web traffic following the IPO. Consistent with this hypothesis, we find that web traffic growth in the month after the IPO is positively and significantly associated with initial returns. Our analyses suggest that the marketing benefits of IPO underpricing for the B2C Internet firms in our sample are economically significant and that IPO underpricing may be less costly to B2C Internet firms than is indicated by the raw amount of money left on the table. We also investigate media reaction to initial returns for a broader sample of IPOs. Our evidence suggests that the marketing benefits of underpricing extend beyond the Internet sector and the hot issues market of late 1990's.
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