Environmental Risk Concern and Short-Term IPO Performance of Green Stocks During the Covid-19 Crisis Period

This study examines the effect of firms' greenness on IPO underpricing and subsequent short-term performance during the COVID-19 crisis period. Using 173 US IPOs, we find that IPO underpricing is more for brown firms than green firms. However, when we account for the exogenous change in environmental concerns, we find that an increase in environmental concerns causes lower initial day returns for brown firms. Later, we examine the post-IPO 3-month (6-month) holding period returns and find that brown firms earn higher returns than green firms when environmental concerns increase. Cross-sectional regressions indicate that firm-level characteristics, such as offer price and Hi-tech, are positively associated, while R&D, leverage, and profitability are negatively associated with the IPO underpricing for green firms. On the other hand, offer size and market capitalization are positively, and first-day trading volume is negatively associated with brown firms' IPO underpricing.