Media Coverage and IPO Pricing Around the World
Yangyang Chen, Abhinav Goyal, Madhu Veeraraghavan, Leon Zolotoy
Journal of Financial and Quantitative Analysis | Cambridge University Press (CUP) | Published : 2020
We study how media coverage impacts pricing of IPOs around the world. Higher media coverage in the pre-IPO period leads to lower IPO initial returns. The effect is mitigated in countries with better financial reporting quality, greater shareholder rights protection, and more stringent media censorship, and for IPOs “certified” by reputable intermediaries, while it is amplified in countries with higher levels of media penetration and media trust. Further, IPOs with higher pre-IPO media coverage have lower ex-post price revision volatility. Our findings suggest that higher pre-IPO media coverage reduces information asymmetry among investors, leading to less underpriced IPOs.
We thank Jarrad Harford (the editor) and Chad Zutter (the referee) for helpful comments and suggestions. We also appreciate helpful comments on earlier versions of this paper from seminar and session participants at the 2017 Australasian Banking and Finance Conference, 2018 IIM-Ahmedabad JAAF Symposium, 2018 FMA Asia Conference, 2018 Asian Finance Association Annual Meeting, University of Liverpool, University College Dublin, University of Maynooth, Xi'an Jiaotong-Liverpool University, Queen's University Belfast, Hong Kong Polytechnic University, Central University of Finance and Economics, Beijing Technology and Business University, Tsinghua University, Lingnan University, and Xi'an Jiaotong University. We thank Savitha Heggede for excellent research assistance. Veeraraghavan thanks the T.A. PAI Chair Professorship for funding. Part of the work on this paper was done while Chen was affiliated with the Hong Kong Polytechnic University. This paper won the best paper award of the 2018 Asian Finance Association Annual Meeting.