IPO Valuation and IPO Inter-Industry Effects

Sureyya Avci ()

Journal of Research in Economics, Politics & Finance, 2021, vol. 6, issue 2, 418-438

Abstract: This study examines the valuation effects of initial public offerings (IPOs) and intra-industry effects of IPOs in Turkey between 2010 and 2018. The purpose of this study is to find out whether initial public offerings are overvalued and whether they impact the pricing of industry peers. First, the valuation of IPOs is investigated. Price-to-value ratios of Turkish IPOs are compared with sector average ratios to determine whether IPOs are overvalued. Turkish IPOs are not overvalued against industry rivals’ price-to-value ratios based on sales and earnings-before-interest-taxes-depreciation-and-amortization (EBITDA) and earnings. Similarly, valuation based on price-to-value ratios is not related to initial pricing of IPOs. Second, the intra-industry effects of IPOs are investigated. Sector-adjusted abnormal returns of IPOs are compared to market-adjusted abnormal returns. The results are not affirmative: There is no statistically significant difference between the two abnormal returns. Turkish IPOs do trigger significant price declines on rival companies’ stocks. Altogether, the findings indicate that there is neither overvaluation of IPOs nor intra-industry effects over rival companies. Companies do not time the market based on industrial overvaluation. This may indicate market efficiency or lack of competition in the IPO market.

Keywords: IPOs; Valuation; Underpricing; Intra-Industry Effects; Price-to-Value Ratios (search for similar items in EconPapers)
JEL-codes: G11 G23 G32 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:ahs:journl:v:6:y:2021:i:2:p:418-438

DOI: 10.30784/epfad.831246

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