10.5465/AMBPP.2015.294 WHY SILENCE IS GOLDEN: FIRM PARTICIPATION IN SOCIAL MEDIA IN AN IPO CONTEXT ABHISHEK BORAH Foster School of Business University of Washington Seattle, WA 98195 U. DAVID PARK University of Washington EMILY COX PAHNKE University of Washington In 2005, the Securities Exchange Commission (SEC) updated the rules regarding the “quiet period” during the initial public offering (IPO) process. Under the new guidelines, firms are permitted to publicly update their activities via press releases and interviews with media intermediaries during the quiet period. In this way, firms can inform potential investors about their activities, and help reduce the uncertainty surrounding the initial public offering throughout the IPO process. Reducing uncertainty enables underwriters to price IPO shares at a "true" rather than discounted (underpriced) value, allowing a firm and its founders to retain more of the wealth generated from the IPO (Certo et al., 2001; Pollock and Rindova, 2003). Although, on average, IPO shares are underpriced (the closing price on the first day of trading on a public exchange is higher than the initial offering price) (Rock, 1986), reducing uncertainty is key to allowing the firm and its founders to retain more of the wealth generated by the IPO. An IPO provides entrepreneurs a platform for the creation and retention of wealth. As Certo and et. al (2001) contend, "Wealth creation occurs not only when entrepreneurs build their businesses, but also when and if they personally lead their businesses into the public ownership domain" (p. 657). When shares of a newly public firm are underpriced, significant financial resources are left on the table. Greater underpricing results in higher profit for investors who are allocated shares at the offering price, while revenue for the issuing firm’s founder, management, and employees will be lower (Ritter, 2013). Thus, entrepreneurs need strategies that will enable them to avoid leaving money on the table during the IPO process. On average, IPO firms in the U.S. issued shares that were underpriced by 12 percent during 2001–2012 period, representing $35 billion that entrepreneurs could have retained (Ritter, 2013). Thus, underpricing represents a transfer of wealth from an issuing firm to its public investors. Due to its economic significance management scholars have tried to understand the reasons for underpricing. Management scholars have provided two important explanations for underpricing (cf. Certo et al., 2001). One research stream maintains that the information found in the IPO documents filed with regulatory agencies impacts underpricing due to the inherent information asymmetry between IPO firms and potential investors. Research has shown how the information reported in an IPO prospectus regarding a firm’s business, leadership, and governance structure may reduce information asymmetry, decrease IPO underpricing, and increase the financial resources IPO firms retain (e.g., Cohen and Dean, 2005; Filatotchev and Bishop, 2002; Martens, Jennings, and Jennings, 2007).