Keywords

soft information, IPOs, textual analysis, underpricing, word counts, content analysis

Abstract

Using content analysis we measure the impact of soft information, derived from words in IPO registration documents, on IPO pricing efficiency. First, using 2,298 U.S. IPOs from 1996 to 2008, we find that an IPO document’s strategic tone correlates positively with the stock’s first-day return; more frequent usage of positive and/or less frequent usage of negative strategic words lead to more IPO underpricing. Second, we find that an IPO document’s strategic tone is negatively correlated with the stock’s long-run return. Together, these findings imply that investors initially misprice soft information in registration statements, which mispricing is eventually corrected. Additionally, we create new content-analysis libraries for strategic words and introduce a survey-based library creation method and word-weighting system.

Original Publication Citation

Soft Strategic Information and IPO Underpricing, with Jim Cicon and Grant McQueen, Journal of Behavioral Finance, Vol. 17, Iss. 1, 2016, 1-17.

Document Type

Peer-Reviewed Article

Publication Date

2012

Publisher

Journal of Behavioral Finance

Language

English

College

Marriott School of Business

Department

Finance

University Standing at Time of Publication

Full Professor

Download

Share

COinS