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Exploring the Influence of Investor Sentiment on IPO Underpricing of Technology Companies

Schulte, Martin (2020) Exploring the Influence of Investor Sentiment on IPO Underpricing of Technology Companies.

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Abstract:The phenomenon of IPO underpricing is researched since at least the 1960s, with a multitude of possible explanations offered by academia. This study focuses on investor sentiment as a possible determinant for the underpricing of IPOs, focusing exclusively on technology firms. Using the Baker-Wurgler investor sentiment index, a sample of 245 US technology firm IPOs from the period between 2010–2018 is analysed. Through t-tests, a statistically significant difference is found between the aver-age amount of IPO underpricing, depending on the prevalent investor sentiment environment at the time of the IPO. In periods of positive investor sentiment, the amount of underpricing is higher compared to periods of negative investor sentiment. Multiple linear regression models suggest a statistically significant relationship between investor sentiment and IPO underpricing, while controlling for the factors firm age, number of employees, and total transaction value. This study reaffirms earlier studies confirming a relation of investor sentiment and IPO underpricing, offers a new approach to the issue by using the Baker-Wurgler sentiment index, and provides a basis for future research.
Item Type:Essay (Bachelor)
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:85 business administration, organizational science
Programme:International Business Administration BSc (50952)
Link to this item:http://purl.utwente.nl/essays/83636
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