What role does investor sentiment play in ECM transactions?

Investor sentiment plays a crucial role in ECM transactions, as it directly influences demand for new equity issues and the valuations investors are willing to pay. When sentiment is positive, investors are more likely to buy shares, which can lead to increased demand for a company's stock. This heightened demand can result in higher valuations, enabling companies to raise capital more successfully and at favorable terms.

Conversely, when investor sentiment is negative, it can lead to diminished interest in new stock offerings. In this scenario, companies may find it challenging to attract investors, resulting in lower demand and potentially unfavorable pricing for their equity. This dynamic demonstrates that the overall market mood significantly affects the success of equity capital market transactions, from initial public offerings (IPOs) to follow-on offerings.

In this context, the other options do not accurately capture the significance of sentiment in ECM transactions. The notion that sentiment has no impact lacks recognition of the fundamental relationship between market psychology and transaction outcomes. Limiting sentiment's influence to after a transaction overlooks the pre-existing conditions that can dictate success or challenges during the offering phase. Finally, suggesting that sentiment only affects private equity disregards its critical role across the broader equity capital markets, impacting all types of equity transactions.