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IPO Underpricing: The Role of Media Coverage During the COVID-19 era

Ordelman, J.H. (2023) IPO Underpricing: The Role of Media Coverage During the COVID-19 era.

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Abstract:The short-term IPO underpricing anomaly has been under investigation for many decades. Research on the short-term IPO underpricing anomaly has led to the identification of a multitude of explanations for the existence of the IPO underpricing anomaly. These explanations are typically found at the firm level. Antecedents outside of the firm, like media coverage, have gained less scholarly attention. The COVID-19 pandemic has influenced news reporting and IPO underpricing during the period. This study delves into the effect of ex-ante media coverage on IPO underpricing during the COVID-19 period which has as of yet received, to the authors best knowledge, no previous academic attention. The study employs textual analysis in the form of a bag of words approach to determine the sentiment of media articles one week prior to the IPO. Based on a sample of 155 IPOs from 2019 and 2020 on the American market and over 1,800 news articles, I show that (a) positive sentiment displayed in media coverage is positively associated with first-day IPO underpricing; (b) this effect is more pronounced during the COVID-19 period; (c) this effect is stronger when the media coverage is close to the IPO date; (d) the number of news articles and negative sentiment have no association with first-day IPO underpricing. The findings emphasize the influence ex-ante media can exert on short-term IPO underpricing during a global crisis like the COVID-19 pandemic.
Item Type:Essay (Master)
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:85 business administration, organizational science
Programme:Business Administration MSc (60644)
Link to this item:https://purl.utwente.nl/essays/96280
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