Pre-issue attention and the performance of an IPO

Abstract: This study looks at IPOs on Swedish stock exchanges between the years 2000 and 2017. It aims to investigate if a relationship exists between investor attention for a company before its IPO and the subsequent returns of its stock in the early trading after the IPO. The study builds on research by Barber and Odean (2008) which showed that investors use attention-grabbing factors such as news coverage to satisfy a need of information to select investments. Consequently, data on news coverage is used as a proxy for investor attention in our model. We find that a significant relationship exists between the number of times a company is mentioned in the media six months prior to its IPO, and the returns for its stock the first day of trading after its IPO. Our results contribute to earlier research conducted on the North American markets and show that the relationship holds on the Swedish market and even though a ten-fold increase in publicity has been seen since.