Abstract:
This paper examines IPO firms' media tone during a particular time window in the IPO process as a proxy for investor sentiment at firm level, and analyzes how investor sentiment affects IPO underpricing. Consistent with existing literatures, negative media tone tends to have more robust explanation for IPO performance. In particular, we find that negative media tone is negatively and significantly related to IPO underpricing, over_funding ratio and underwriters' proceeds_ratio: negative media tone increases by 1%, underpricing decreases by 0.22%, over-funding ratio drops by 0.13%, and underwriting proceeds_ratio drops by 1.44% on average. We further show IPO firms and underwriters have strong incentives to promote IPO firms, which constitutes a driving factor of investor sentiment. We finally test the robustness of media tone as a proxy for investor sentiment.
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