Offer pricing of Australian industrial initial public offers

Article

Cotter, Julie, Goyen, Michelle and Hegarty, Sherryl. 2005. "Offer pricing of Australian industrial initial public offers." Accounting and Finance. 45 (1), pp. 95-125. https://doi.org/10.1111/j.l467-629x.2004.00137.x
Article Title

Offer pricing of Australian industrial initial public offers

ERA Journal ID19059
Article CategoryArticle
AuthorsCotter, Julie (Author), Goyen, Michelle (Author) and Hegarty, Sherryl (Author)
Journal TitleAccounting and Finance
Journal Citation45 (1), pp. 95-125
Number of Pages31
Year2005
PublisherJohn Wiley & Sons
Place of PublicationMelbourne, Australia
ISSN0810-5391
1467-629X
Digital Object Identifier (DOI)https://doi.org/10.1111/j.l467-629x.2004.00137.x
Web Address (URL)http://www.blackwellpublishing.com/permis.asp?ref=0810-5391&site=1
Abstract

In the present paper we examine the setting of offer prices for Australian industrial initial public offers (IPOs) by fixed price offers. Our investigation focuses on the associations between offer prices and both market prices and accounting based measures of intrinsic value. Fixed-price offers are less likely to be influenced by the canvassing of market demand when compared to the US setting, where book-builds are typically used. We conclude that while Australian industrial IPOs are underpriced, they are not systematically undervalued. Contrary to research undertaken by Purnanandam and Swaminathan in the US book-build setting, we do not conclude that Australian IPOs are systematically overvalued. As part of our analysis, we develop an empirical model of offer prices based on interviews with several leading Australian stockbrokers involved in setting them. Finally, using the ratio of offer price to intrinsic value measure, we find some evidence that undervaluation is positively related to underpricing.

Keywordsoffer prices; offer pricing; Australian industrial initial public offers
ANZSRC Field of Research 2020350208. Investment and risk management
380109. Industry economics and industrial organisation
380304. Microeconomic theory
Public Notes

File reproduced in accordance with the copyright policy of the publisher/author.

Byline AffiliationsSchool of Accounting, Economics and Finance
Management Development and Research Centre
FKP, Australia
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