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A little Birdie told me: Social media, organizational legitimacy, and underpricing in initial public offerings

Author

Listed:
  • Leif W. Lundmark

    (University of Nebraska)

  • Chong Oh

    (University of Utah)

  • J. Cameron Verhaal

    (Georgia State University)

Abstract

Drawing on the organizational legitimacy literature, we propose and test a set of hypotheses arguing that social media, an artifact of information technology, serves as a mechanism for conferring legitimacy in the market for initial public offerings (IPOs). The extant literature identifies third-party authorities, such as traditional media outlets and industry analysts, as a valuable source of organizational legitimacy. Social media and micro-blogging, however, remain outside current classifications of the phenomenon. This study theoretically develops and empirically tests a new mechanism in the legitimation process: the direct interaction with potential investors and society-at-large via social media. Our findings indicate broad support that having a Twitter account, and the extent to which a firm utilizes Twitter, is associated with systematically higher levels of IPO underpricing. Moreover, we find support that social media variables external to the firm, including number of followers and retweets, also impact the level of underpricing in an IPO. In conclusion, we highlight the emerging role of social media in processes of legitimation and invite additional research at the intersection of IS and management.

Suggested Citation

  • Leif W. Lundmark & Chong Oh & J. Cameron Verhaal, 2017. "A little Birdie told me: Social media, organizational legitimacy, and underpricing in initial public offerings," Information Systems Frontiers, Springer, vol. 19(6), pages 1407-1422, December.
    • Handle: RePEc:spr:infosf:v:19:y:2017:i:6:d:10.1007_s10796-016-9654-x
    DOI: 10.1007/s10796-016-9654-x
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    References listed on IDEAS

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    2. Marten Risius & Christoph F. Breidbach & Mathieu Chanson & Ruben Krannichfeldt & Felix Wortmann, 2023. "On the performance of blockchain-based token offerings," Electronic Markets, Springer;IIM University of St. Gallen, vol. 33(1), pages 1-19, December.

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