The Effect of Investors' Behavioral Bias on IPO Return: Moderator Role of Audit Quality and Firm Growth

Abstract

The present study seeks to answer the question of whether there is a relationship between investor behavioral bias and short-term returns of initial public offering (IPO) or not and whether this relationship is affected by audit quality (audit size) and the firm growths of be moderated or not? In this research, the data of 172 companies listed on the Tehran Stock Exchange (TSE) during the years 2008-2021 have been used. To measure investors' interest in lottery through the expected skewness criterion as well as short-term cumulative return, it is calculated within 10 working days after the offer. Regression test was performed based on cross-sectional regression. The results of the study indicate that the direct relationship between the investors’ preference for skewness and short-term returns of IPO and higher audit quality (audit size), reduces the amount of the effect. Also, the intensity of this effect is less in companies that have less growth options than the average than companies that have more growth options than the average.