The valuation of IPO, SEO and Post-Chapter 11 firms: A Stochastic Frontier Approach

Gary Koop and Kai Li ()

Edinburgh School of Economics Discussion Paper Series from Edinburgh School of Economics, University of Edinburgh

Abstract: We examine the pricing of initial public offering (IPO), seasoned equity offering (SEO) and post-chapter 11 firms using a stochastic frontier methodology. The stochastic frontier framework allows us to model "inefficiency" or the difference between a firm's maximum predicted and its actual market capitalization at the time of the offering as a function of observable firm characteristics. Data for the analysis are comprised of 833 IPOs, 1,846 SEOs and 55 post-Chapter 11 firms between 1990 and 1996. At issue both the IPO and post-Chapter 11 firms are underpriced, while the SEO firms are almost efficiently priced. Furthermore, the market capitalization of an offering firm is positively related to size, sales and net income, negatively related to its debt level. Finally, offering firms tend to receive a poor market valuation in bad economic times.

Keywords: underpricing; market efficiency; Bayesian inference (search for similar items in EconPapers)
JEL-codes: C11 G14 G33 (search for similar items in EconPapers)
Pages: 29
Date: 1998-07
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Citations: View citations in EconPapers (1)

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