Clearing up confusion
the effect of outlier similarity on IPO underpricing
Informazioni aggiuntive
Autori
Gouvard P.,
Durand R.
Tipo
Articolo pubblicato in rivista scientifica
Anno
2024
Lingua
Inglese
Sommario
Prior research demonstrates that audiences tend to converge in their valuations of firms similar to preexisting category prototypes or exemplars. Much less is known of the influence of salient outliers, specific firms that receive market-wide attention due to their extreme, ambiguous performance, on audiences’ valuations. We argue that outlier similarity, by contrast with prototype similarity, leads to divergent valuations among individual investors. We explore this insight in the context of initial public offerings (IPOs). In this context, converging valuations among investors lead to limited information asymmetry concerns and hence reduced underpricing on the first day of trading of an issuing firm. Hence, we expect that prototype similarity leads to lower underpricing while outlier similarity leads to higher underpricing. We test our hypotheses using a sample of 2,488 United States IPOs from 1996 to 2015, measuring prototype and outlier similarity through a natural language processing technique applied to nearly 160,000 financial documents. We find that in low-tech industries, where prototypes are informative about category members, prototype similarity reduces underpricing, but not in high-tech industries. Additionally, we find that outlier similarity increases underpricing, especially for more recent outliers. This paper contributes to the literature on market valuation and market categories, and advances research on meaning and culture using new text-based computational methods.
Parole chiave
Archival data, Content analysis, Economic sociology, IPOs, Natural language processing, Organizational ecology, Population ecology
Periodico
Organization Studies
Diffusione
Licenza
CC BY
Visibilità
Pubblico
Status open access
Hybrid
