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Gouvard_2024_Sage_Org Studies_Clearing up confusion
Journal article

Clearing up confusion : the effect of outlier similarity on IPO underpricing

  • Gouvard, Paul ORCID Institute of Management and Organisation (IMO), Facoltà di scienze economiche, Università della Svizzera italiana, Svizzera
  • Durand, Rodolphe HEC Paris, France
  • 2024
Published in:
  • Organization Studies. - 2024
Archival data
Content analysis
Economic sociology
IPOs
Natural language processing
Organizational ecology
Population ecology
English 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.
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Language
  • English
Classification
Economics
License
CC BY
Open access status
hybrid
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Persistent URL
https://n2t.net/ark:/12658/srd1330312
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