The valuation and pricing of initial public offerings

Going public is an incredibly exciting and dynamic event in a company's life. The company and its management are transformed and will forever have to conduct their business differently. During the mid to late 1990s, many companies went public, creating multitudes of instant millionaires overnight, from company executives to administrative staff. Many people recognized that Initial Public Offerings (IPOs) tend to significantly increase in price on the first day of trading. As a result, there have been many academic studies to try to determine the rationale as to why IPOs are typically underpriced. Most of these academic studies have focused on the analysis of 1 st day pricing results and attempted to correlate these results to various hypotheses. We try to understand this phenomenon and corroborate the academic hypotheses by talking to those who set the offer price -the investment bankers, underwriters, and company managers- to find out why underpricing occurs. This thesis provides the reader with a better understanding of how companies are valued and the initial offering price determined, and explain the differences in opinion between academics, bankers, and management as to why underpricing occurs. To accomplish this task, we first focused on capturing underwriters' opinions regarding the valuation and pricing of IPOs. We then interviewed executives that had taken companies public to compare and contrast their views with those from the bankers, and compared them to the conclusions from academics' research.

Department dc:contributor.department

Sloan School of Management.

Grantor dc:publisher

Massachusetts Institute of Technology

Year dc:date.issued

2004

Authors dc:creator

• Martínez, Sergio (Martínez Roel), 1966-
• Perron, Paul M. 1961-

Advisor dc:contributor.advisor

• Jonathan W. Lewellen.

• Sloan School of Management.

Statement dc:rights

• M.I.T. theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission. See provided URL for inquiries about permission.

Licence dc:rights.uri

• http://dspace.mit.edu/handle/1721.1/7582

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/1721.1/17903

OAI identifier oai:identifier

oai:dspace.mit.edu:1721.1/17903