Media Coverage and IPO Pricing around the World
Yangyang Chen, Abhinav Goyal, Madhu Veeraraghavan, and Leon Zolotoy
Published in Journal of Financial and Quantitative Analysis, August 2020
In this paper, Professor Yangyang Chen, Department of Accountancy, and co-authors study how media coverage impacts IPO underpricing (i.e., the extent to which the offer price is below the IPO-day closing price) around the world. Chen et al. finds that higher media coverage in the pre-IPO period is associated with lower IPO underpricing.
“The effect of media coverage is weaker in countries with better financial reporting quality, greater shareholder rights protection and more stringent media censorship, whilst stronger in countries with higher levels of media penetration and media trust. The effect of media coverage is also weaker for IPOs “certified” by reputable intermediaries,” he says.
Overall, their findings suggest that higher media coverage reduces information asymmetry among investors, leading to fewer underpriced IPOs.
The paper contributes to the literature about the impact of media on capital markets by generating comprehensive evidence on the role of media in reducing information asymmetry within the context of international IPOs. The paper also contributes to the literature on the pricing of IPOs by documenting media coverage as an important determinant of IPO underpricing. Lastly, the findings cast media as an important informal institution that alleviates informational frictions in settings where formal institutions offer limited protection to investors, thus potentially carrying policy implications for regulators.