Media Exposure or Media Hype: Evidence from Initial Public Offering Stocks in Taiwan

Abstract

It is frequently observed that the price at which a firm's stock is listed for its initial public offering (IPO) is considerably less than the price at which it trades at the end of its first day of trading, a phenomenon known as underpricing. This article examines how media-provided information affects IPO underpricing and trading turnover. The empirical findings show that the more media coverage a firm receives over a substantial period of time prior to its IPO, the smaller the degree to which its stock is underpriced. However, more media coverage immediately prior to the IPO date increases the degree of underpricing. It is also shown that the tenor of media coverage affects the relations between the volume of near-term, pre-IPO information provided by media and both underpricing and trading turnover.

News media coverage and initial public offerings in Germany: explaining flotation performance

“…While Bhattacharya et al (2009) could not find evidence for such a media hype to explain the bubble for internet IPOs in the early 2000s, Jang (2007) concludes from his study that the more the media cover a newly listed stock, the greater the demand for that stock on the side of uninformed, private investors. In fact, Liu et al (2008) find a positive relationship between media coverage during the filing period for IPOs and their underpricing.…”

“…This leads to further price fluctuations, which in turn comes along with further media coverage. Inferring from Shiller's positive feedback hypothesis, Jang (2007) assumes that prior media coverage on firms that go public might induce a hype about IPOs on the market.…”

“…Theoretical framework IPOs An IPO is the technical term for describing the first time when a public investor can buy shares of a firm ( Jang, 2007). While a more tacit objective of going public is to become more visible on the market and to develop a better reputation among the public, one of the main pecuniary aims is to raise capital for growth and thus achieve a good flotation performance (Kraus and Strömsten, 2012).…”

“…Davis, 2005;Tetlock, 2007). However, institutional investors receive relevant information on IPOs primarily through personal contacts (Davis, 2005;Jang, 2007). Nevertheless, there are two reasons why professional investors might rely on media coverage when making investment decisions after all.…”

The consequences of being on the agenda: The effect of media and public attention on firms’ stock market performance

“…In particular, this attention might have an impact on investors, as they are generally interested in this specific type of economics-related issue. Therefore, the amount of attention devoted to certain aspects of the economy or business might result in increased awareness of these economic aspects among the public, and investors and might in turn affect stock market ratings (Jang, 2007). In general, agenda setting studies have explored the effects of media coverage of the economy (e.g., recession news) on overall stock market ratings.…”