Abstract
Before shares of a company are sold to the general public on a security exchange for the first time, regulatory publication requirements force U.S. firms to file an initial public offering prospectus. While accounting information in IPO filings are closely studied by investors and analysts, research must also examine the textual content of these filings. Thus, we measure the proportion of uncertain language. As a result, this paper provides empirical evidence that soft content is not only a major driver of first-day stock market returns, but also persists in the market up 10 days of trading. However, a much stronger impact on stock market prices comes from the pre-IPO news tone. Interestingly, the more uncertainty words appear in pre-IPO news, the higher the following first-day stock market return. It seems that investors mainly focus on the chances of a company rather than on the risks.
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