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The Impact of Fundamentals on IPO Valuation
Author(s) -
Aggarwal Rajesh,
Bhagat Sanjai,
Rangan Srinivasan
Publication year - 2009
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.2009.01035.x
Subject(s) - initial public offering , earnings , valuation (finance) , proxy (statistics) , business , boom , earnings growth , monetary economics , sample (material) , economics , accounting , chemistry , chromatography , machine learning , environmental engineering , computer science , engineering
We examine how initial public offering (IPO) valuation has changed over time by focusing on three time periods: 1986‐1990, January 1997 to March 2000 (designated as the boom period), and April 2000 to December 2001 (designated as the crash period). Using a sample of 1,655 IPOs, we find that firms with more negative earnings have higher valuations than do firms with less negative earnings and firms with more positive earnings have higher valuations than firms with less positive earnings. Our results suggest that negative earnings are a proxy for growth opportunities for Internet firms and that such growth options are a significant component of IPO firm value.