Media legitimation effects in the market for initial public offerings

In this study, we argue that media-provided information affects investors ’ impressions of newly public firms. In 225 initial public offerings (IPOs), the volume of media-provided information had a negative, diminishing relationship with underpricing and a positive, diminishing relationship with stock turnover on the first day of trading. The relationship between the tenor of media-provided information and underpricing in-creases at a nonlinear rate, and decreases similarly for turnover. Findings provide important evidence that publicly available information not only reflects IPOs ’ legiti-macy, but also adds to their legitimacy and influences investor behavior. In the last 20 years, an increasing amount of research on markets has been conducted from a social constructionist perspective, emphasizing how social structures enhance the flow of useful and credible information that market participants use to reduce the uncertainty of market exchanges (e.g., Aldrich & Fiol, 1994; Zuckerman, 1999). Fur-ther, recent organizational research has begun to stress the influence of information intermediaries, such as financial analysts and the media, on mar