Terrorist Attacks, Investor Sentiment, and the Pricing of Initial Public Offerings

62 Pages Posted: 30 Jul 2019 Last revised: 3 Nov 2020

See all articles by Yangyang Chen

Yangyang Chen

City University of Hong Kong (CityUHK) - Department of Accountancy

Abhinav Goyal

University College Cork

Madhu Veeraraghavan

T.A. PAI Management Institute, Finance Area; T A Pai Management Institute, Manipal

Leon Zolotoy

University of Melbourne - Melbourne Business School

Date Written: November 3, 2020

Abstract

Using terrorist attacks as exogenous shocks to investor sentiment, we study the impact of investor sentiment on initial public offering (IPO) pricing. IPOs listed within the 30-day period following terrorist attacks, on average, experience lower first-day returns. The documented impact of terrorist attacks is magnified when there is greater IPO valuation uncertainty and when the terrorist attacks are more salient to investors, while mitigated for IPOs “certified” by reputable intermediaries. We also show that the affected IPOs, on average, have more pessimistic media tone in the post-attack/pre-listing day period. The affected IPOs also tend to have lower levels of price revisions, subscriptions, primary share revisions, and total proceeds. Collectively, our findings underscore the salience of investor sentiment in shaping IPO outcomes.

Keywords: terrorist attacks, investor sentiment, IPO pricing

JEL Classification: G10, G11, G14

Suggested Citation

Chen, Yangyang and Goyal, Abhinav and Veeraraghavan, Madhu and Zolotoy, Leon, Terrorist Attacks, Investor Sentiment, and the Pricing of Initial Public Offerings (November 3, 2020). Journal of Corporate Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3426970 or http://dx.doi.org/10.2139/ssrn.3426970

Yangyang Chen (Contact Author)

City University of Hong Kong (CityUHK) - Department of Accountancy ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong
China

Abhinav Goyal

University College Cork ( email )

O'Rahilly Building
College Road
Cork
Ireland
+353 (0)21 490 2839 (Phone)

Madhu Veeraraghavan

T.A. PAI Management Institute, Finance Area ( email )

Bangalore
Manipal, Karnataka 576104
India
+91-820-2701030 (Phone)

T A Pai Management Institute, Manipal ( email )

TAPMI Canpus
Manipal
Manipal, Manipal 576104
India
+91-820-2701020 (Phone)

Leon Zolotoy

University of Melbourne - Melbourne Business School ( email )

200 Leicester Street
Carlton, Victoria 3053 3186
Australia

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