What Do Employees Know? Quality Perception and 'Over-Satisfaction' in Firms Going Public

Should IPO investors pay attention to employees' views on firm quality and work satisfaction (e.g., work-life-balance)? We track employees' opinions (Glassdoor) in private firms that subsequently go public. Employees' pre-IPO views are informative: positive views on firm/manager quality predict stronger post-IPO stock performance, while dispersion in opinions correlates with post-IPO return volatility. A striking finding is that employees' satisfaction in excess of that predicted by firm quality opinions (over-satisfaction) is negatively related to post-IPO performance. Finally, positive initial-day stock returns enhance employees' views regarding firm quality, suggesting that IPO underpricing may secure a boost in employees' morale