How Do Investment Banks Value Initial Public Offerings (IPOs)?

31 Pages Posted: 27 Apr 2009

See all articles by Marc Deloof

Marc Deloof

University of Antwerp; University of Antwerp - Antwerp Management School

Wouter De Maeseneire

Vlerick Business School; Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Koen Inghelbrecht

Ghent University - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: 2008-09

Abstract

We investigate the valuation and the pricing of initial public offerings (IPOs) by investment banks for a unique dataset of 49 IPOs on Euronext Brussels in the 1993–2001 period. We find that for each IPO several valuation methods are used, of which Discounted Free Cash Flow (DFCF) is the most popular. The offer price is mainly based on DFCF valuation, to which a discount is applied. Our results suggest that DDM tends to underestimate value, while DFCF produces unbiased value estimates. When using multiples, investment banks rely mostly on future earnings and cash flows. Multiples based on post-IPO forecasted earnings and cash flows result in more accurate valuations.

Suggested Citation

Deloof, Marc and De Maeseneire, Wouter and Inghelbrecht, Koen, How Do Investment Banks Value Initial Public Offerings (IPOs)? (2008-09). Journal of Business Finance & Accounting, Vol. 36, Issue 1-2, pp. 130-160, January/March 2009, Available at SSRN: https://ssrn.com/abstract=1394693 or http://dx.doi.org/10.1111/j.1468-5957.2008.02117.x

Marc Deloof (Contact Author)

University of Antwerp ( email )

Prinsstraat 13
Faculteit TEW
Antwerpen, 2000
Belgium
+32 3 265 41 69 (Phone)
+32 3 265 47 99 (Fax)

HOME PAGE: http://https://www.uantwerpen.be/en/staff/marc-deloof/

University of Antwerp - Antwerp Management School ( email )

Boogkeers 5
Antwerp, 2000
Belgium

Wouter De Maeseneire

Vlerick Business School ( email )

Reep 1
Ghent
BE-9000 Ghent
Belgium

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

Koen Inghelbrecht

Ghent University - Department of Economics ( email )

Sint-Pietersplein 5
Ghent, B-9000
Belgium
+32 9 264 89 77 (Phone)

HOME PAGE: http://users.ugent.be/~kjinghel/

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