Seasonal Affective Disorder and IPO Underpricing: Implications for Young Firms

A critical event in the life of a firm is when it undergoes an initial public offering (IPO). Drawing on the Seasonal Affective Disorder (SAD) literature, which evidences a psychological condition that produces heightened pessimism and risk aversion during the fall and winter months, this study focuses on understanding the potential implications of SAD for young firms. Our results confirm the influence of SAD on IPO underpricing and demonstrate that younger firms experience even higher underpricing during periods most heavily associated with SAD. However, we find that using a higher-quality underwriter or changing the share retention decision can mitigate this impact.