Navigate to video: Exploring IPO Valuations
Video (01:06)
Exploring IPO Valuations

Erik Malmsten Visiting Prof. Russ Wermers in Collaboration with Taylan Mavruk


The project focuses on ownership and valuation of companies during their initial public offerings (IPOs), where companies offer their shares to the public for the first time. The two researchers investigate how information about companies 'Corporate Social Responsibility (CSR) impacts their initial stock valuations and how investors react in different economic conditions.

Russ Wermers, the Erik Malmsten Visiting Professor is the Paul J. Cinquegrana '63 Endowed Chair in Finance and Director, Center for Financial Policy at the Smith School of Business, University of Maryland at College Park. Together with Taylan Mavruk, a professor of finance at the School of Business, Economics and Law, they are conducting a study on how "expressed" Corporate Social Responsibility (CSR) affects companies during their initial public offerings. 

– When we say 'expressed,' we refer to what companies communicate they intend to do and what 'social values' they emphasize in their prospectus offerings to the market before the IPO, explains Russell R. Wermers. 

Previous research has yielded mixed results regarding how CSR affects stock prices. Some studies indicate that companies that prioritize CSR, such as diversity in the workplace or reducing carbon emissions, have higher stock prices according to investors. On the other hand, other studies have shown that these companies can sometimes have lower stock prices. 

– We focus on IPOs because they involve new companies in the market, reducing the risk of other factors affecting stock prices on the first day, apart from the CSR effect. Previous studies have often used stocks that have been on the market long after the IPO, which can lead to other factors correlating with the CSR effect and affecting stock price changes instead of CSR itself, adds Russ Wermers. 

Taylan Mavruk and Russ Wermers have other projects planned in the CSR field. 

Russ Wermers Presented Three Articles at the School of Business, Economics, and Law

At the end of August, Russ Wermers visited the School of Business, Economics, and Law in Gothenburg to present two published articles and an ongoing project. 

One of the articles, titled "Chinese Business News - Review of Finance 2022," explores the connection between language and culture. For example, it can be challenging to translate complex financial concepts or emotions from one language to another, such as when comparing English to Mandarin. 

– It becomes particularly complicated when dealing with financial news, where subjects can be complex, such as executive performance management, explains Russ Wermers. 

An ongoing project is similar to the publication "Language and Domain Specificity: A Chinese Financial Sentiment Dictionary," published in the Review of Finance in 2022, but focuses on the Japanese language. 

– As we have discovered in China, it is highly likely that Japan has a very different culture regarding word choices and word interpretation compared to the United States, emphasizes Russ Wermers. 

Another article Russel R. Wermers discussed in his presentation is titled "Institutional Trading Around Corporate News: Evidence from Text Analysis." 

– This article investigates how unexpected news bulletins, for example, 'Steve jobs has cancer,' are interpreted by institutional investors in terms of their trading following the news, both on the same day and in the days that follow. It also explores whether their news-driven trading results in 'alpha' for their funds, says Russ Wermers.

Why Is It Important to Understand Institutional, Business, and Financial Trading in News Expressed in Different Languages?

– All of these articles are intended to deepen the understanding of how value-relevant news is incorporated into stock prices. News bulletins are likely some of the most timely and informative sources of general information for the financial world, so it is important to build financial dictionaries to interpret these news bulletins, considering a specific language and its culture. It is also essential to utilize both human experts in the local language and machine learning algorithms to enhance such financial dictionary, concludes Russ Wermers. 

Text: Simon Fredling Jack, multimedia communicator.