Building on past studies showing that textual information in an IPO prospectus (prospectus text) is related to IPO outcomes and initial returns, this paper investigates whether institutional investors capitalize on prospectus texts. Exploiting a unique institutional setting of IPOs in Korea, we show that IPO firms with positive tones in their prospectus texts often set higher initial offer price bands in advance of bookbuilding, yielding negative final offer price revisions. In contrast, tones and lengths in prospectuses do not affect institutional investors' average bidding prices and oversubscription ratios. While institutional investor bidding price strongly predicts short-term and long-term IPO stock performances, prospectus texts predict long-term IPO stock performance. Our findings suggest that prospectus texts are informative to institutional investors, especially in the long-run. 

Keywords: Textual Analysis, Bookbuilding, Offer Price Revisions, Initial Returns, Long-term Performance​