Initial public offering and financial news

Abstract

This paper explores the relation between the media sentiment and initial public offerings’ (IPOs) underpricing which means whether the media were responsible for the phenomenal rise and fall in the market value of IPOs’ shares from 2010 to 2014. This paper does not focus on what drives the media coverage of IPO firms but focuses on the effect of pre-IPO media coverage on the first day’s return. In this paper, we use sentiment analysis to calculate the media sentiment and use the sentimental words to classify the news articles. Then, we find that the media sentiment is significantly related to initial return (IR). We also find significant results that IR is related to market return compared to media sentiment in the non-electronics industry. Furthermore, as this paper expected, the number of positive (negative) news articles has a positive (negative) influence on the IR in the electronics industry.