News media coverage and initial public offerings in Germany: explaining flotation performance

Purpose The purpose of this paper is to investigate the relationships of news media coverage and the performance of initial public offerings (IPOs) in Germany. The aim is to find out how media attention, media sentiment, corporate information, and recency of news are related to the flotation performance of firms that go public. Design/methodology/approach 50 IPOs that went public in Germany between January 2011 and December 2015 were investigated. In total, 3,644 German speaking articles dealing with the IPOs were manually analyzed. Hierarchical OLS regressions were performed to find out how news media variables relate with the flotation performance of German IPOs (cf. underpricing, share price percentage gain after second day of trading). It was furthermore distinguished between news media coverage six days prior to the IPO and coverage on the day of the IPO itself. Findings While more media attention devoted to the IPOs on the day of their flotation might lead to a share price percentage gain after the second day of trading, negativity in the news media and information about new products and products of the IPO firm might be negatively related with their flotation performance. However, information about the strategy change of the IPO firms seems to be positively related with the underpricing of IPOs. Furthermore, news media coverage on the day of the IPO itself seems to be more influential for the flotation performance with regard to negative sentiment and information about new products. Practical implications Financial communication professionals should manage media representations of IPO firms before and on the day of the IPO itself. In this vein, negative media coverage should be prevented and information about new products and products of the IPO firm should be considered with caution. Instead, talking about the strategy of the IPO firm might be advantageous for the flotation performance. Originality/value This study evolved from a lack of empirical research on the interrelationships between news media and stock market prices in communication science, particularly with regard to IPOs. The study contributes to previous research in paying attention to corporate information and the recency of news when trying to explain IPO performances. The findings of this study provide implications for strategic financial communication and the role of managing news media of firms that go public.