Marketing an IPO issuer in early stages of the IPO process

Abstract

Successful marketing of an IPO issuer depends on the issuer’s attractiveness to early stage stakeholders such as underwriters and institutional investors. However, there is limited research on how these stakeholders evaluate IPO issuers. We investigate how a multitude of cues influence underwriter prestige and price shortfall. In addition, we draw on cue utilization theory and the attention-based view of the firm to hypothesize contrasting uses of cues by underwriters and institutional investors. An empirical examination of 119 IPOs using 2SLS identifies cues that help increase underwriter prestige and reduce price shortfall. Furthermore, our estimation reveals important differences between the two early stage stakeholders—whereas underwriters rely more on intrinsic cues to evaluate the attractiveness of IPO issuers, institutional investors rely more on extrinsic cues. These findings have important theoretical implications as well as normative implications for marketing an IPO issuer in early stages of the IPO process.