Underwriter Reputation, CEO Stock Option and IPO Success: Regulatory Focused Framing as Moderators

Abstract

In this study, I focus on a firm’s framing as a crucial driver of market reaction and investigate its effects on the success of initial public offerings (IPOs). In the past, researchers have focused on the effects of underwriter reputation and those of CEO stock options on IPO performance based on signaling theories. However, these signaling theories have not fully explained firms’ framing of regulatory focus and its effect on IPO performance. Therefore, drawing from the framing effectiveness, regulatory focus, and shareholder value orientation theories, I examine the effects of promotion focused framing and those of prevention focused framing on IPO performance. I hypothesized that underwriter reputation and CEO stock options would strongly affect IPO performance along with the moderating role of promotion focused framing and that of prevention focused framing. Based on a sample of firms that made “first-time commitment” IPOs in the U.S. high-tech industries (472 firms), I have found out that most of my hypotheses were supported. This study offers a set of crucial theoretical and managerial insights on the phenomenon of IPOs.