Title
How do investment banks value initial public offerings (IPOs)?How do investment banks value initial public offerings (IPOs)?
Author
Faculty/Department
Faculty of Applied Economics
Research group
Accountancy and Finance
Publication type
article
Publication
Oxford,
Subject
Economics
Source (journal)
Journal of business finance & accounting. - Oxford
Volume/pages
36(2009):1/2, p. 130-160
ISSN
0306-686X
1468-5957
ISI
000263601200006
Carrier
E
Target language
English (eng)
Full text (Publishers DOI)
Affiliation
University of Antwerp
Abstract
We investigate the valuation and the pricing of initial public offerings (IPOs) by investment banks for a unique dataset of 49 IPOs on Euronext Brussels in the 19932001 period. We find that for each IPO several valuation methods are used, of which Discounted Free Cash Flow (DFCF) is the most popular. The offer price is mainly based on DFCF valuation, to which a discount is applied. Our results suggest that DDM tends to underestimate value, while DFCF produces unbiased value estimates. When using multiples, investment banks rely mostly on future earnings and cash flows. Multiples based on post-IPO forecasted earnings and cash flows result in more accurate valuations.
E-info
https://repository.uantwerpen.be/docman/iruaauth/edb4ec/d086638f406.pdf
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