Predicting and Examining Links between IPO Hype, Managerial Expectations, and Firm Outcomes

Hype is a powerful force and it clearly influences people\u27s behavior (Chen, Melessa, \u26 Zhang, 2012; Kothari, Li, \u26 Short, 2009; Lang \u26 Lundholm, 1996). Understanding and being able to identify hype is important, but more important is understanding how hype influences behavior. This dissertation examines the links between media hype and managerial expectations and firm outcomes. The paper begins with a conceptual framework that provides a model for understanding the information environment and how differential relationships between media hype and managerial behavior exist. Key aspects of the model are the sources and timing of hype, particularly a concept called a trigger event. Next, the dissertation suggests a new taxonomy for exploring media hype based on sources of hype to include Community Hype (online traffic), Own Hype (firm-generated press releases), Market Hype (major news periodicals), and Expert Hype (Wall Street analyst reports). Following the presentation of the new taxonomy of hype, a predictive model of the relationship between media hype and managerial behavior is presented and then empirically tested. The sample includes 126 US IPOs from 2007-2011 and longitudinal data is gathered over a two-year period surrounding the IPO event. Measures of over-confidence are develop theoretically and include 1) the allowance of negative earnings surprise events to occur and 2) failure of managers to prudently sell-off a portion of their equity at the expiration of the lock-up period. Hypotheses examine whether or not measures of over-confidence occur, how often they occur, and by how much they occur. Results indicate that managers are influenced by media hype in that they exhibit actions reflecting overconfidence when the media hype generated about the firm surrounding its IPO is volumous, salient with respect to the focal firm and relatively positive in nature. Curiously, results reveal that media\u27s influence is not the same at all times and that it impacts managerial expectations and firm outcomes differently for different types of hype at different times