Peer Accounting Information and the Use of Peer-based Multiples for IPO Valuation
AuthorBrushwood, James Darrach
AdvisorDhaliwal, Dan S.
Committee ChairDhaliwal, Dan S.
MetadataShow full item record
PublisherThe University of Arizona.
RightsCopyright © is held by the author. Digital access to this material is made possible by the University Libraries, University of Arizona. Further transmission, reproduction or presentation (such as public display or performance) of protected items is prohibited except with permission of the author.
AbstractInitial public offerings (IPOs) are primarily valued using the comparable firms approach, whereby underwriters rely heavily on multiples based on the accounting information of peer firms. Effective use of the comparable firms approach depends significantly on the underwriter's ability to estimate the expected future growth and profitability of the IPO firm and its peers and make appropriate adjustments to the multiples to arrive at a final offer price for the IPO shares. I find evidence that, in general, IPO valuations are decreasing relative to peers in the similarity of the peer group to the IPO firm, but this effect is moderated by the peer group's accruals quality. These findings suggest that when peers are similar to the IPO firm, underwriters make less adjustments to the final offer price, however, higher peer accruals quality may ease the assessment of differences in growth and profitability, facilitating further adjustments.
Degree ProgramGraduate College