 Valuing and pricing IPOsPeter Roosenboom Journal of Banking & Finance, 2012, vol. 36, issue 6, 1653-1664 Abstract: This paper investigates how underwriters set the IPO firm’s fair value, an ex-ante estimate of the market value, using a unique dataset of 228 reports from French underwriters. These reports are issued before the IPO shares start trading on the stock market and detail how underwriters determined fair value. We document that underwriters often employ multiples valuation, dividend discount models and discounted cash flow (DCF) analysis to determine fair value but that all of these valuation methods suffer from a positive bias with respect to equilibrium market value. We also analyze how this fair value estimate is subsequently used as a basis for IPO pricing. We report that underwriters deliberately discount the fair value estimate when setting the preliminary offer price. Part of the intentional price discount can be recovered by higher price updates. We find that, controlling for other factors such as investor demand, part of underpricing stems from this intentional price discount. Keywords: Initial public offerings; Valuation; Going public (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:36:y:2012:i:6:p:1653-1664 DOI: 10.1016/j.jbankfin.2012.01.009 Access Statistics for this article Journal of Banking & Finance is currently edited by Ike Mathur More articles in Journal of Banking & Finance from Elsevier |
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