MARKET SENTIMENT. MEDIA HYPE AND THE UNDERPRICING OF INITIAL PUBLIC OFFERINGS THE CASE OF AUSTRALIAN TECHNOLOGY IPOS Abstract This study examines the relationship between the extent of initial public offering (IPO) underpricing and market sentiment surrounding technology issues listing on the Australian Stock Exchange(AsX) during 1999 and 2000. We consider hype surrounding these issues as reflected in the media and as reflected in the market 's sentiment towards recent offerings by similar firms We also consider the relationship between technology firms' need for follow-on offerings due to cash burn' and the level of underpricing. Finally, we examine the information content of management and accountant going concern warnings as a signalling mechanism to reduce ex ante uncertainty regarding the relative risk of IPO candidates Our preliminary results indicate that the extent of underpricing is systematically related to variables measuring the market sentiment surrounding the listing of an IPO. Specifically, underpricing is higher following high underpricing in similar recent issues. There is some evidence of higher underpricing for firms with higher media interest and in the period of the hot IPO market prior to april 2000. We find that firms that experience a greater rate of cash burn also experience greater underpricing consistent with the conjecture that such firms are more likely to need additional financing shortly after they go public. The association between cash burn and underpricing is however reliant on inclusion of a few issues with very high underpricing. We also find evidence consistent with warnings in the prospectus regarding going concern issues providing a valuable signal to mitigate investors' ex ante uncertainty about the value of an offering, thereby reducing the subsequent level of underpricing achieved by that firm1 MARKET SENTIMENT, MEDIA HYPE AND THE UNDERPRICING OF INITIAL PUBLIC OFFERINGS: THE CASE OF AUSTRALIAN TECHNOLOGY IPOS. Abstract This study examines the relationship between the extent of initial public offering (IPO) underpricing and market sentiment surrounding technology issues listing on the Australian Stock Exchange (ASX) during 1999 and 2000. We consider ‘hype’ surrounding these issues as reflected in the media and as reflected in the market’s sentiment towards recent offerings by similar firms. We also consider the relationship between technology firms’ need for follow-on offerings due to ‘cash burn’ and the level of underpricing. Finally, we examine the information content of management and accountant going concern warnings as a signalling mechanism to reduce ex ante uncertainty regarding the relative risk of IPO candidates. Our preliminary results indicate that the extent of underpricing is systematically related to variables measuring the market sentiment surrounding the listing of an IPO. Specifically, underpricing is higher following high underpricing in similar recent issues. There is some evidence of higher underpricing for firms with higher media interest and in the period of the hot IPO market prior to April 2000. We find that firms that experience a greater rate of cash burn also experience greater underpricing consistent with the conjecture that such firms are more likely to need additional financing shortly after they go public. The association between cash burn and underpricing is however reliant on inclusion of a few issues with very high underpricing. We also find evidence consistent with warnings in the prospectus regarding going concern issues providing a valuable signal to mitigate investors’ ex ante uncertainty about the value of an offering, thereby reducing the subsequent level of underpricing achieved by that firm