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.

We study how media coverage impacts pricing of initial public offerings (IPOs) around the world. Higher media coverage in the pre-IPO period leads to lower IPO initial returns. The effect is mitigated in countries with better financial reporting quality, greater shareholder rights protection, and more stringent media censorship, and for IPOs “certified” by reputable intermediaries, while it is amplified in countries with higher levels of media penetration and media trust. Further, IPOs with higher pre-IPO media coverage have lower ex post price revision volatility. Our findings suggest that higher pre-IPO media coverage reduces information asymmetry among investors, leading to less underpriced IPOs.