Assets in Place, Growth Opportunities, and IPO Returns |
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| Authors: | Kee H Chung Mingsheng Li Linda Yu |
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| Institution: | the M&T Chair in Banking and Finance at the State University of New York (SUNY) at Buffalo;Assistant Professor of Finance at University of Louisiana at Monroe;Assistant Professor of Finance at the University of Wisconsin at Whitewater |
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| Abstract: | We consider a simple model positing that initial public offering price is equal to the present value of an entity's assets in place and growth opportunities. The model predicts that initial return is positively related to both the size and risk of growth opportunities. Consistent with this prediction, we find initial return to be positively related to both the fraction of the offer price that is accounted for by the present value of growth opportunities and various proxies of issue uncertainty. We also find that IPO investors equate one dollar of growth opportunities to approximately three quarters of tangible assets. |
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