Accounting-Based Value Metrics and the Informational Efficiency of IPO Early Market Prices

47 Pages Posted: 15 Jan 2002

See all articles by Michelle Yetman

Michelle Yetman

University of California, Davis - Graduate School of Management

Date Written: November 30, 2001

Abstract

In this paper I test the efficiency with which the information contained in accounting-based value metrics, which use accounting information as inputs, is incorporated into initial public offering early market prices. I examine the association between these value metrics and first-day underpricing and three-year returns. I find accounting-based value metrics relative to market prices are associated with both the first-day underpricing and three-year returns, suggesting that the information contained in these metrics, which is available at the date of the initial public offering, is not efficiently impounded into prices. I then test to determine whether variations in investor sentiment affect the efficiency with which accounting-based value metrics are impounded into prices. I find that periods of more positive investor sentiment are associated with more inefficient use of accounting information, consistent with theoretical models of investor sentiment.

Keywords: Market efficiency, IPOs, Initial public offering, Investor sentiment, Accounting-based valuation, Market-based multiples, IPO long-run underperformance, IPO underpricing

JEL Classification: G12, G14, M41, G24

Suggested Citation

Yetman, Michelle, Accounting-Based Value Metrics and the Informational Efficiency of IPO Early Market Prices (November 30, 2001). Available at SSRN: https://ssrn.com/abstract=296686 or http://dx.doi.org/10.2139/ssrn.296686

Michelle Yetman (Contact Author)

University of California, Davis - Graduate School of Management ( email )

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