The Valuation of IPO, Seo and Post-Chapter 11 Firms: A Stochastic Frontier Approach

29 Pages Posted: 25 Aug 1998

See all articles by Kai Li

Kai Li

University of British Columbia (UBC) - Sauder School of Business; Asian Bureau of Finance and Economic Research (ABFER); China Academy of Financial Research (CAFR); European Corporate Governance Institute (ECGI); Canadian Sustainable Finance Network (CSFN)

Gary Koop

University of Leicester - Department of Economics

Date Written: July 1998

Abstract

We examine the pricing of initial public offering (IPO), seasoned equity offering (SEO) and post-Chapter 11 firms using a stochastic frontier methodolgy. 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. Futhermore, 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.

JEL Classification: G33, G14, C11

Suggested Citation

Li, Kai and Koop, Gary M., The Valuation of IPO, Seo and Post-Chapter 11 Firms: A Stochastic Frontier Approach (July 1998). UBCFIN98-9, Sauder School of Business Working Paper, Available at SSRN: https://ssrn.com/abstract=111109 or http://dx.doi.org/10.2139/ssrn.111109

Kai Li (Contact Author)

University of British Columbia (UBC) - Sauder School of Business ( email )

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Gary M. Koop

University of Leicester - Department of Economics ( email )

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