THE ROLE OF THE MEDIA IN THE INTERNET IPO BUBBLE L INTRODUCTION The offer price of eToys'initial public offering(IPO)on May 20, 1999 was $20. It shot up to $76.5625 at the end of the first trading day. Later, in a special report, Wall Street Journal's technology editor Jason Fry noticed that "driving the company's success is a cleanly designed, easy-to-use site designed to soothe adults rattled by the pitfall of toy shopping in the real world". He wrote: ". for many an overeager Web outfit, they [eToys] have proved hard to duplicate. The company is fanatical about providing top-rate customer service, including actual human beings who answer the telephone. It didnt open for business until founder and Chief Executive Officer Toby Lenk believed he understood the toy industry and how it should work online. And eToys is dedicated to moving at Web speed. It has stayed ahead of its deep-pocketed competitors by constantly transforming itself, for example, by diversifying its inventory to include books, music, videos and baby products. "By the end of 2000, the firm traded at 0. 1875 per share, which was 0. 24% of its first day closing price, and 0.94%of its offer price. Today, eToys does not trade. The company went bankrupt and its stock was de-listed from Nasdaq on February 26, 2001 In this paper, we use the phrase "bubble/post-bubble "to reflect the dramatic rise and dramatic fall of stock prices in the period of 1996-2000. We ask and answer the following two questions: was the overall media coverage for internet IPOs in the years 1996 through 2000 different from a matching sample of non-internet IPOs and, if yes, did this difference in the media coverage have any effect on the difference in risk-adjusted returns between internet stocks and non-internet stocks There are many reasons for believing that the media coverage and/or its effect were more pronounced for internet IPOs than for non-internet IPOs in the late 1990s. First, the media were more In this paper we look at stock returns after the first day of trading. In a companion paper, we look at stock returns at the first day of trading. The reason we separated our analysis is because the information dissemination during the pre IPO book-building stage is very different from the information dissemination during the post-IPO stage. In the pre IPO stage, institutions disseminate information and, therefore, the natures of these institutions are the significant control variables. A rich literature exists on what affects the first days return. In the post-IPO stage, on the other hand, the main source of information is the traded price itself. This, therefore, becomes the paramount control variable in this paper1 THE ROLE OF THE MEDIA IN THE INTERNET IPO BUBBLE I. INTRODUCTION The offer price of eToys’ initial public offering (IPO) on May 20, 1999 was $20. It shot up to $76.5625 at the end of the first trading day. Later, in a special report, Wall Street Journal’s technology editor Jason Fry noticed that “driving the company’s success is a cleanly designed, easy-to-use site designed to soothe adults rattled by the pitfall of toy shopping in the real world”. He wrote: “…for many an overeager Web outfit, they [eToys] have proved hard to duplicate. The company is fanatical about providing top-rate customer service, including actual human beings who answer the telephone. It didn’t open for business until founder and Chief Executive Officer Toby Lenk believed he understood the toy industry and how it should work online. And eToys is dedicated to moving at Web speed. It has stayed ahead of its deep-pocketed competitors by constantly transforming itself, for example, by diversifying its inventory to include books, music, videos and baby products.” By the end of 2000, the firm traded at $ 0.1875 per share, which was 0.24% of its first day closing price, and 0.94% of its offer price. Today, eToys does not trade. The company went bankrupt and its stock was de-listed from Nasdaq on February 26, 2001. In this paper, we use the phrase “bubble/post-bubble” to reflect the dramatic rise and dramatic fall of stock prices in the period of 1996-2000. We ask and answer the following two questions: was the overall media coverage for internet IPOs in the years 1996 through 2000 different from a matching sample of non-internet IPOs and, if yes, did this difference in the media coverage have any effect on the difference in risk-adjusted returns between internet stocks and non-internet stocks.1 There are many reasons for believing that the media coverage and/or its effect were more pronounced for internet IPOs than for non-internet IPOs in the late 1990s. First, the media were more 1 In this paper we look at stock returns after the first day of trading. In a companion paper, we look at stock returns at the first day of trading. The reason we separated our analysis is because the information dissemination during the pre￾IPO book-building stage is very different from the information dissemination during the post-IPO stage. In the pre￾IPO stage, institutions disseminate information and, therefore, the natures of these institutions are the significant control variables. A rich literature exists on what affects the first day’s return. In the post-IPO stage, on the other hand, the main source of information is the traded price itself. This, therefore, becomes the paramount control variable in this paper