IPO valuation using peer multiples - Evidence of overvaluation from Europe 1990-2008

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dc.contributorAalto-yliopistofi
dc.contributorAalto Universityen
dc.contributor.authorPöyhönen, Santtu Mikael
dc.contributor.departmentLaskentatoimen ja rahoituksen laitosfi
dc.contributor.departmentDepartment of Accounting and Financeen
dc.contributor.schoolKauppakorkeakoulufi
dc.contributor.schoolSchool of Businessen
dc.date.accessioned2016-08-16T11:35:41Z
dc.date.available2016-08-16T11:35:41Z
dc.date.dateaccepted2009-09-08
dc.date.issued2009
dc.description.abstractPURPOSE OF THE STUDY The purpose of this study is to analyze the valuation of European initial public offerings (IPOs) relative to peer group of comparable firms by using price-to-value (P/V) multiples. Furthermore, the intention of this thesis is to study underpricing, short-run abnormal returns, and long-run underperformance in price-to-value valuation context. The objective of the study is threefold. First, I empirically test whether the European initial public offerings are overvalued in relation to their listed peer companies by using various price multiples. Secondly, I examine the relationship between IPO underpricing and valuation results. Lastly, I study possible differences in short- and long-run abnormal returns between under- and overvalued IPOs. DATA The initial listing data for European IPOs is gathered from the Thomson Financial SDC Global New Issues database, and it has been completed with the financial and secondary market data from the Thomson ONE-banker and DataStream databases. The financial and aftermarket data for peer companies is solely retrieved from the Thomson ONE-banker. After all the limitations, my final sample consists of 614 European IPOs from the time period of 1.1.1990-31.12.2008. RESULTS My results indicate that European IPOs are systematically overvalued by 60% relative to their industry peers, and the overpricing is significantly highest by about 150% during the “dot-com” boom in years 1999-2000. The results also suggest that investors pay too much information to optimistic growth forecasts and too little attention to current profitability in valuing IPOs which creates unique patterns in IPOs’ aftermarket returns. I find that overvalued IPOs earn 27% (p.a.) higher risk-adjusted abnormal returns than undervalued IPOs during the first six months but earn 40% to 110% lower buy-and-hold abnormal returns on a five-year time scale.en
dc.ethesisid14452
dc.format.extent85
dc.format.mimetypeapplication/pdfen
dc.identifier.urihttps://aaltodoc.aalto.fi/handle/123456789/21274
dc.identifier.urnURN:NBN:fi:aalto-201609083488
dc.language.isoenen
dc.locationP1 I
dc.programme.majorRahoitusfi
dc.programme.majorFinanceen
dc.subject.heleconrahoitus
dc.subject.heleconfinancing
dc.subject.heleconlistautuminen
dc.subject.heleconlisted companies
dc.subject.heleconyrityksen arvo
dc.subject.heleconcompany valuation
dc.subject.helecontuotto
dc.subject.heleconrate of return
dc.subject.keywordinitial public offering
dc.subject.keywordIPO
dc.subject.keywordbehavioral finance
dc.subject.keywordinvestor sentiment
dc.subject.keywordovervaluation
dc.subject.keywordunderpricing
dc.subject.keywordAfter-market performance
dc.subject.keywordBuy-and-hold abnormal return
dc.subject.keywordBHAR
dc.titleIPO valuation using peer multiples - Evidence of overvaluation from Europe 1990-2008en
dc.typeG2 Pro gradu, diplomityöfi
dc.type.dcmitypetexten
dc.type.ontasotPro gradu tutkielmafi
dc.type.ontasotMaster's thesisen
local.aalto.idthes14452
local.aalto.openaccessyes
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