Terror Threat and Investor Sentiment : International Evidence

Terrorism remains a persistent threat to global peace and stability, but its impact extends beyond the realm of security. We examine the impact of terrorism on an important capital market transaction – initial public offerings (IPOs). Consistent with the notion that terrorism dampens investor sentiment, we find robust evidence that first-day returns are lower in countries with higher Global Terrorism Index scores. Examining this issue in an international setting allows us to advance the literature in two important ways. First, we provide direct evidence that greater terror threat associates with lower investor sentiment. Second, we shed light on factors – strong democratic principles, high-quality governance institutions, and transparent accounting disclosures – that moderate the negative impact of terror threat on investor sentiment and IPO returns