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The role of optimistic news stories in IPO pricing

Version 2 2024-06-03, 16:32
Version 1 2016-02-08, 12:25
journal contribution
posted on 2024-06-03, 16:32 authored by Peter CareyPeter Carey, V Fang, Hong Feng ZhangHong Feng Zhang
This study investigates the influence of optimistic news stories on first-day pricing of initial public offerings (IPOs) in Australia between 1995 and 2005. Unlike the United States, Australia has no quiet-period regulation limiting the dissemination of information from media before IPO listing dates. We find that optimistic news stories are negatively associated with IPO underpricing. Results from a relative valuation model show that IPOs which received positive news stories ahead of the first trading day are not overpriced relative to their industry benchmarks. These results suggest that optimistic news stories mitigate information asymmetry and adverse selection problems. However, optimistic news stories do not appear to inflate the share price on the first day of trading. Our findings suggest that regulation mandating a 'quiet period' before the commencement of trading in IPOs is neither necessary nor desirable in the Australian environment.

History

Journal

Journal of international financial markets, institutions and money

Volume

41

Pagination

16-29

Location

Amsterdam, The Netherlands

ISSN

1042-4431

Language

eng

Publication classification

C Journal article, C1 Refereed article in a scholarly journal

Copyright notice

2016, Elsevier

Publisher

Elsevier