The Long-Run Role of the Media: Evidence from Initial Public Offerings

Abstract

The unique characteristics of the U.S. initial public offering (IPO) process, particularly the strict quiet period regulations, allow us to explore the effects of media coverage when the coverage does not contain genuine news (i.e., hard information that was previously unknown). We show that a simple, objective measure of pre-IPO media coverage is positively related to the stock's long-term value, liquidity, analyst coverage, and institutional investor ownership. Our results are robust to additional controls for size, to using abnormal or excess media, and to an instrumental variable approach. We also find that pre-IPO media coverage is negatively related to future expected returns, measured by the implied cost of capital. In all, we find a long-term role for media coverage, consistent with Merton's attention or investor recognition hypothesis. This paper was accepted by Brad Barber, finance.

Influence of media coverage and sentiment on seasoned equity offerings

“…Huberman and Regev () point out that spurious publicity is no less important to stock pricing than risk. More importantly, media's influences on capital market through attention grabbing can be spurious publicity and remain even without genuine information (Huberman and Regev, ; Liu et al ., ).…”

“…Different from prior studies (e.g. Cook et al ., ; Ferris et al ., ; Loughran and McDonald, ; Liu et al ., ), our analysis is conducted in the setting of UK SEOs instead of US IPOs for the following considerations. First, SEO is a more strict setting to investigate media's influence on investors.…”

“…We construct two sets of media measures: (i) media coverage, which is the summative amount of media news covering the SEO issuer (e.g. Fang and Peress, ; Liu et al ., ), and (ii) media sentiment, which is evaluated according to the linguistic content of media articles, and calculated as the average of the ratio of negative words minus positive words to total words for all related articles in the pre‐SEO period (e.g. Garcia, ).…”

Is More News Good News? Media Coverage of CEOs, Firm Value, and Rent Extraction

“…Moreover, we study the media coverage of CEOs of large and well-known¯rms, while their paper investigates the di®erence in stock returns between¯rms with high level of media coverage and¯rms with no media coverage. Several recent papers also study the impact of media coverage in di®erent contexts such as in IPOs (Liu et al, 2013), through Google search (Da et al, 2011), in mergers and acquisitions (Ahern and Sosyura, 2014), and through \spin" of investor relations'¯rms (Solomon, 2012).…”

Who Makes the Choice on IPO Underwriting Methods? Issuers Versus Underwriters

“…Moreover, the aftermarket price may depend upon how the IPO is conducted. Liu, Sherman, and Zhang () find that firms with more pre‐IPO media coverage have higher long‐term stock prices relative to the fundamentals, as well as greater liquidity, analyst coverage, and institutional investor ownership in the three years following the IPO. They use an instrumental variable approach to illustrate that shifts in pre‐IPO attention affect the aftermarket stock price.…”