Elizabeth A. Demers

The marketing role of IPOs: evidence from internet stocks

This paper explores the potential marketing benefits of going public and of IPO underpricing. We examine the impact of IPO underpricing on website traffic, which is a direct measure of product market performance for internet firms. If underpricing attracts media attention and creates valuable publicity, we expect an increase in web traffic following the IPO. We find that web traffic growth in the month after the IPO is positively and significantly associated with initial returns, and the effect is economically significant. We also investigate media reaction to initial returns for a broader sample of IPOs. The results suggest that the marketing benefits of underpricing extend beyond the internet sector and the ‘‘hot issues’’ market of the late 1990s. r 2003 Elsevier Science B.V. All rights reserved. JEL classification: G32; M41; M3

The Impact of Credibility on the Pricing of Managerial Textual Content

This paper examines whether, and under what conditi s, the “soft” information contained in the text of management’s quarterly earnings press relea s s is incrementally informative over company-issued “hard” information. We use several t extual-analysis programs to extract various dimensions of managerial net optimism from more tha n 20,000 corporate earnings announcements over the period 1998 to 2006 and document that unan ticipated net optimism in managers’ language affects announcement period abnormal retur ns and predicts post-earnings announcement drift. We further find, consistent with economic th eory, that two key aspects of the information environment influence the price-responsiveness to n et optimism: (i) the informativeness of the contemporaneously available hard information; and ( ii) the likely credibility of the net optimism itself. We also show that the second moment of soft information, the level of uncertainty in the text, attenuates the market’s response to earnings a nouncement surprises, is associated with contemporaneous announcement period idiosyncratic v olatility, and predicts future idiosyncratic volatility incrementally to “hard” information. JEL Classifications: G14; D82; M41

Oh What a Beautiful Morning! Diurnal Influences on Executives and Analysts: Evidence from Conference Calls

This study provides novel evidence that expert economic agents’ work-related activities are systematically influenced by the time of day. We use archival data derived from time-stamped quarterly earnings conference calls together with linguistic algorithms to measure and track the moods of executives and analysts at different times of the day. The evidence indicates that the tone of conference call discussions deteriorates markedly over the course of the trading day, with both analysts’ and executives’ moods becoming more negative as the day wears on. Capital market pricing tests reveal that the time-of-day-induced negative tone leads to temporary stock mispricings. Our findings are relevant because the diurnal variations in behavior documented in the context of quarterly earnings calls are likely to extend across other important corporate communication, decision making, and performance situations, leading to potentially significant economic consequences. This paper was accepted by Shiva Rajgopal, accounting.

A Tale of two Bubbles: A Preliminary Look at the US Internet and Biotechnology Bubbles

The term speculative bubble refers to a situation where prices diverge from their so-called “fundamental values” due to investor optimism rather than anything intrinsic to the values of the underlying assets themselves.1 Economic historians have documented that one of the hallmarks of a speculative bubble is “new era” thinking, or the belief that some new price-enhancing circumstance is present in the world that somehow justifies a permanently higher level of valuation (e.g., Galbraith (1993); Shiller (2000)). Despite the world’s long history of speculative bubbles (see, e.g., Kindleberger (2000) or Garber (2001) for a detailed historical perspective), Welch (2001) recently identified stock market “frenzies” such as the most recent US Internet stock bubble as one of the top 10 challenges yet to be addressed by empirical financial research. Technology market observers and casual empiricists such as Perkins and Perkins (1999) have remarked that the Internet stock bubble has numerous parallels with the US biotechnology bubble that preceded it by less than a decade. Consistent with the “new era” thinking associated with other past speculative manias, for example, both the biotechnology and Internet stock bubbles were characterized by a belief that the new technology underlying these then-nascent stage industries would be revolutionary in their impact on the human condition. What seems most surprising is that investors in US technology stocks did not appear to learn from the biotech bubble and we thereby witnessed a similar, albeit more extreme, cycle of upward and ultimately downward price spirals when the Internet industry emerged less than a decade later.