The Impact of Fundamentals on IPO Valuation |
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| Authors: | Rajesh Aggarwal,Sanjai Bhagat&dagger , Srinivasan Rangan&Dagger |
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| Affiliation: | Rajesh Aggarwal is a Professor at the Carlson School of Management, University of Minnesota, Minneapolis, MN.;Sanjai Bhagat is a Professor at the Leeds School of Business, University of Colorado, Boulder, CO.;Srinivasan Rangan is a Visiting Professor at the Leeds School of Business, University of Colorado, Boulder, CO. |
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| Abstract: | We examine how initial public offering (IPO) valuation has changed over time by focusing on three time periods: 1986-1990, January 1997 to March 2000 (designated as the boom period), and April 2000 to December 2001 (designated as the crash period). Using a sample of 1,655 IPOs, we find that firms with more negative earnings have higher valuations than do firms with less negative earnings and firms with more positive earnings have higher valuations than firms with less positive earnings. Our results suggest that negative earnings are a proxy for growth opportunities for Internet firms and that such growth options are a significant component of IPO firm value. |
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