Exploring the first impression of a company: an empirical analysis of IPO prospectuses applying the impression formation model

Abstract

PurposeThe present study aims to identify how firms positioned their corporate reputation (i.e. impressiveness vs respectability) in their initial public offering (IPO) communication based on the impression formation model. Further, the study examined whether this presentation of corporate reputation was related to IPO success (i.e. stock price and volume of trading).Design/methodology/approachThe present study analyzed 248 IPO prospectuses that were submitted to the major US stock markets. Specifically, various substantive and symbolic information and cues in IPO prospectuses were content analyzed.FindingsThe results suggest that bigger (in terms of revenue) IPO companies featured more “impressiveness” in their IPO prospectus, leading to greater IPO success. Bigger (in terms of both revenue and number of employees) IPO companies featured more “respectability” impressions in the IPO prospectus, although they did not achieve direct IPO success on the first day of IPO. Different types of industry used different information cues to feature “impressiveness” and/or “respectability,” suggesting that different types of firms view different cues to be important to IPO communication.Practical implicationsThe results also suggest some practical guidelines for the strategic use of contents, tables and illustrations. Using more charts, tables and illustrations in IPO prospectus summaries was associated with a higher volume of trading on the first day. The more illustrations included in the IPO prospectus summaries, the less investors were willing to pay for initial stock prices.Originality/valueIPO communication is a generally understudied area in corporate communication and strategic communication scholarship. The results should help to explain which communicative aspects and PR strategies effectively manage the firm’s impression to maximize the chances of an IPO success as well as initially build the financial reputation of a company. By doing so, the findings contribute to the broader advancement of financial communication within the strategic communications domain.