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IPO Underpricing, Firm Quality, and Analyst Forecasts
Author(s) -
Zheng Steven X.,
Stangeland David A.
Publication year - 2007
Publication title -
financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.647
H-Index - 68
eISSN - 1755-053X
pISSN - 0046-3892
DOI - 10.1111/j.1755-053x.2007.tb00086.x
Subject(s) - earnings before interest, taxes, depreciation, and amortization , initial public offering , accrual , earnings , business , earnings management , earnings quality , quality (philosophy) , monetary economics , earnings growth , accounting , economics , philosophy , epistemology
We find that IPO underpricing is positively related to post‐IPO growth in sales and EBITDA, but is not significantly related to growth in earnings. Our evidence suggests that accrual reversals or earnings management may cause this inconsistency. We interpret the growth rates of sales and EBITDA as measures of firm quality, and conclude that our evidence supports the notion that IPO firms with greater underpricing are of better quality. Our tests on analysts' earnings forecast errors show that analysts are less positively biased in their earnings forecasts for IPO firms that have greater underpricing.