The Impact Of Media News Sentiment On IPO Pricing During The Quiet Period

IPO pricing deviation refers to the phenomenon of excessive abnormal initial return,which means the closing price on the first day is much higher than the issuing price.This phenomenon is common worldwide,but the degree of such IPO pricing deviation is lower for developed Western markets.For emerging markets,the first day return rate of IPO is higher than that in developed countries.Such pricing deviations will reduce the capital allocation capacity of financial markets,exacerbate future stock price volatility and cause losses to investors.To reduce excessive first-day IPO returns,Chinese government has also taken a series of measures,such as carrying out reforms of the split share structure and the registration system.Considering that some companies may deliberately issue inducing news or engage in improper publicity to hype new shares in order to raise more capital,in May 2012,the policy of IPO quiet period was introduced to the Chinese main board market.In this context,this paper summarizes the current research status of the silent period,media news and IPO pricing in China.Through the literature and theoretical analysis,this paper concludes that most of discussion of the quiet period by Chinese scholars focuses on the legal level without combining with media news and IPO pricing.Moreover,the understanding of the concept of IPO pricing is vague.Therefore,taking the quiet period as the background,it bears practical and theoretical significance to deeply explore the impact of media news sentiment and quantity on IPO pricing,as well as the change of this impact under different circumstances.This paper divides it into three sub problems for research: firstly,after the state strengthened the regulation of financial industry news in 2019,is the impact of media news on IPO pricing attention effect or information effect? Secondly,what does media news do to the new share market? Thirdly,will the strength of the relationship between media news and IPO prices change under different underwriter reputation?Based on the theoretical dissection of these three issues,this paper selects 653 companies with media releases during the pre-IPO quiet period that are listed in 2019-2021 as the study subjects,the first day of listing excess return of the sample companies as the explained variables,the number of positive news,the number of negative news and the news sentiment value of the media releases during the pre-IPO quiet period of the sample companies as the explanatory variables,and the company’s first-day-of-IPO turnover rate as investor sentiment for the empirical analysis.The study found that in China,media releases during the pre-IPO quiet period played the role of "information effect" and this mechanism was realized through investor sentiment;in addition,underwriter reputation will negatively moderate this information effect.The significance of this paper lies in the following three aspects: first,it innovatively demonstrates that media news during the quiet period acts on the IPO market by influencing investor sentiment,and this transmission is carried out through investor sentiment,which is consistent with the definition of information effect by foreign scholars.Second,through the text analysis of Python-based sentiment dictionary,it demonstrates that the wording and fierce tone of media news releases exacerbate IPO pricing deviations.Therefore,media news publishers should standardize their wordings and media practitioners themselves should not be emotionally charged in news creation.Third,the higher the reputation of the underwriter,the weaker the IPO pricing deviation caused by media news.Therefore,the choice of a more reputable underwriter is more conducive to the stability of the IPO market.