Valuation of IPOs

Abstract

Valuation of initial public offerings (IPOs) occupies an important place in finance, perhaps because an IPO provides public capital market participants their first opportunity to value a set of corporate assets. Valuation of IPOs is also quite relevant from an economic efficiency perspective: the IPO is the first opportunity that managers of such (usually young) companies get to observe price signals from the public capital markets. Such signals can either affirm or repudiate management's beliefs regarding the firm's future growth opportunities, which have obvious implications for real economic activity (e.g., employment and corporate investment).