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The valuation of IPO, SEO and Post-Chapter 11 firms: A Stochastic Frontier Approach

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Abstract

We examine the pricing of initial public offering (IPO), seasoned equity offering (SEO) and post-chapter 11 firms using a stochastic frontier methodology. The stochastic frontier framework allows us to model "inefficiency" or the difference between a firm's maximum predicted and its actual market capitalization at the time of the offering as a function of observable firm characteristics. Data for the analysis are comprised of 833 IPOs, 1,846 SEOs and 55 post-Chapter 11 firms between 1990 and 1996. At issue both the IPO and post-Chapter 11 firms are underpriced, while the SEO firms are almost efficiently priced. Furthermore, the market capitalization of an offering firm is positively related to size, sales and net income, negatively related to its debt level. Finally, offering firms tend to receive a poor market valuation in bad economic times.

Suggested Citation

  • Gary Koop & Kai Li, 1998. "The valuation of IPO, SEO and Post-Chapter 11 firms: A Stochastic Frontier Approach," Edinburgh School of Economics Discussion Paper Series 13, Edinburgh School of Economics, University of Edinburgh.
    • Handle: RePEc:edn:esedps:13
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    Cited by:

    1. Koop, Gary & Li, Kai, 2001. "The valuation of IPO and SEO firms," Journal of Empirical Finance, Elsevier, vol. 8(4), pages 375-401, September.

    More about this item

    Keywords

    underpricing; market efficiency; Bayesian inference;
    All these keywords.

    JEL classification:

    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General

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