We gratefully acknowledge the constructive comments at the American Finance Association meetings, at the London Business School seminar, and of an anonymous referee.
The Impact of Fundamentals on IPO Valuation
Article first published online: 8 JUN 2009
© 2009 Financial Management Association International
Volume 38, Issue 2, pages 253–284, Summer 2009
How to Cite
Aggarwal, R., Bhagat, S. and Rangan, S. (2009), The Impact of Fundamentals on IPO Valuation. Financial Management, 38: 253–284. doi: 10.1111/j.1755-053X.2009.01035.x
- Issue published online: 8 JUN 2009
- Article first published online: 8 JUN 2009
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.