African Journal of
Business Management

  • Abbreviation: Afr. J. Bus. Manage.
  • Language: English
  • ISSN: 1993-8233
  • DOI: 10.5897/AJBM
  • Start Year: 2007
  • Published Articles: 4111

Full Length Research Paper

The social side of IPOs: Twitter sentiment and investors’ attention in the IPO primary market

Gian Luca Gregori
  • Gian Luca Gregori
  • Department of Management, Università Politecnica delle Marche, Piazzale Martelli n.8, 60121 Ancona, Italy.
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Luca Marinelli, Camilla Mazzoli
  • Luca Marinelli, Camilla Mazzoli
  • Department of Management, Università Politecnica delle Marche, Piazzale Martelli n.8, 60121 Ancona, Italy.
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Sabrina Severini
  • Sabrina Severini
  • Department of Management, Università Politecnica delle Marche, Piazzale Martelli n.8, 60121 Ancona, Italy.
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  •  Received: 12 October 2020
  •  Accepted: 12 November 2020
  •  Published: 31 December 2020

Abstract

Despite in recent years the impact of market sentiment on the performance of listing firms has gained increased attention from academics and professionals, a research question that remains uncovered deals with how the retail investor sentiment and attention might impact the IPO pricing in the primary market. This analysis proposes a stochastic frontier model approach on a sample of 412 US firms listed between 2010 and 2016. The main research questions aim at revealing the effects that the number and the sentiment of the Tweets in the 3 months prior to each IPO produce in terms of the distance between the maximum achievable price and the actual offer price of the stocks. Results show that the more favorable the sentiment, the closer the offer price is set to the maximum achievable to the benefit of the issuer; on the contrary, negative sentiments seem to play no effect on the pricing, supporting the idea that investors are net buyers of attention-grabbing news. The number of Tweets shows no effect as well. Few and good is then the desirable attention and sentiment that issuers should wish for their listing firms.

 

Key words: Initial public offering, sentiment, investors’ attention, underpricing, social media.