get down with IPO

Financial journalism largely relies on market participants (Oberlechner & Hocking 2004: 414) and routine company announcements (Doyle 2006: 436) to analyze and forecast stock market volatility, trading decisions and investor sentiment. The latter is an essential yardstick at the time of an Initial Public Offering (IPO), a public company’s baptism by fire.

Drawing on Miles and Snow’s typology of corporate strategy, Gao et al. (2008) classify firms into four strategy types (prospectors, defenders, analyzers, and reactors) and examine IPO prospectuses as strategy type signaling tools. In their regression analysis of IPO firms’ communication strategies, the authors (Gao et al. 2008: 26) found

that 30-day underpricing may be a useful indicator of a credible strategic communication in the IPO communication process … Specifically, in the biotechnology industry, if the firm attempts to reduce the 30-day underpricing (i.e., reduce the need to discount the offer price to attract prospector-centered investors before an IPO communication), they may need to consistently communicate their prospector intentions across all three important dimensions—product/market, technology, and administration. By contrast, if the firm attempts to increase the 30-day underpricing (i.e., attract the defender strategy-centered investors before an IPO communication), firms may need to consistently indicate their defender strategic intentions across dimensions in their public documents.

It’s research like this that provides ammo for

• countering the widely held view corporate communication is a nice-to-have instead of a need-to-have;
• business communication majors and PhD students when asked ‘so does your major make money?’

Sources:

• Doyle, Gillian (2006). Financial news journalism. A post-Enron analysis of approaches towards economic and financial news production in the UK. Journalism Studies 7, 433–452. DOI: 10.1177/1464884906068361
• Gao, Hongzhi, Darroch, Jenny, Mather, Damien and MacGregor, Alan (2008). Signaling corporate strategy in IPO communication. A Study of Biotechnology IPOs on the NASDAQ. Journal of Business Communication 45, 3-30. DOI: 10.1177/0021943607309349
• Oberlechner, Thomas and Hocking, Sam (2004). Information sources, news, and rumors in financial markets: Insights into the foreign exchange market. Journal of Economic Psychology 25, 407-424.
  doi:10.1016/S0167-4870(02)00189-7