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IPO valuation and offering size

Author

Listed:
  • Chunhua Chen

    (Shanghai Lixin University of Accounting and Finance, Administration Building)

  • Chuntai Jin

    (Grande Prairie Regional College)

  • Tianze Li

    (Keyano College)

  • Steven X. Zheng

    (University of Manitoba)

Abstract

Using a sample of 4441 IPOs from the US, we find that IPO firms with larger proportional offering size have lower valuation. The sizes of both primary share offering and secondary share offering are negatively related to IPO firm valuation. The valuation measures are positively related to the levels of capital expenditure and R&D before IPO, lending support to explanations based on Jensen (JAMA 76:323–329, 1986)’s free cash flow hypothesis. We also find evidence consistent with negative signals from larger secondary share offering size. Results of tests about long-run IPO stock performance do not support the hypothesis that IPO stock demand curve is downward sloping.

Suggested Citation

  • Chunhua Chen & Chuntai Jin & Tianze Li & Steven X. Zheng, 2018. "IPO valuation and offering size," Risk Management, Palgrave Macmillan, vol. 20(2), pages 95-120, May.
    • Handle: RePEc:pal:risman:v:20:y:2018:i:2:d:10.1057_s41283-017-0029-5
    DOI: 10.1057/s41283-017-0029-5
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    References listed on IDEAS

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    More about this item

    Keywords

    IPO; Valuation; Offering size; R&D; Capital expenditure; Long-run stock performance;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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