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Offer pricing of Australian industrial initial public offers
Author(s) -
Cotter Julie,
Goyen Michelle,
Hegarty Sherryl
Publication year - 2005
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/j.1467-629x.2004.00137.x
Subject(s) - initial public offering , value (mathematics) , economics , financial economics , market price , intrinsic value (animal ethics) , hedonic pricing , price setting , business , monetary economics , accounting , microeconomics , industrial organization , econometrics , computer science , philosophy , machine learning , environmental ethics
In the present paper we examine the setting of offer prices for Australian industrial initial public offers (IPOs) by fixed price offers. Our investigation focuses on the associations between offer prices and both market prices and accounting based measures of intrinsic value. Fixed‐price offers are less likely to be influenced by the canvassing of market demand when compared to the US setting, where book‐builds are typically used. We conclude that while Australian industrial IPOs are underpriced, they are not systematically undervalued. Contrary to research undertaken by Purnanandam and Swaminathan in the US book‐build setting, we do not conclude that Australian IPOs are systematically overvalued. As part of our analysis, we develop an empirical model of offer prices based on interviews with several leading Australian stockbrokers involved in setting them. Finally, using the ratio of offer price to intrinsic value measure, we find some evidence that undervaluation is positively related to underpricing.