Offer pricing of Australian industrial initial public offers

Cotter, Julie and Goyen, Michelle and Hegarty, Sherryl (2005) Offer pricing of Australian industrial initial public offers. Accounting and Finance, 45 (1). pp. 95-125. ISSN 0810-5391

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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.

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Item Type: Article (Commonwealth Reporting Category C)
Refereed: Yes
Item Status: Live Archive
Additional Information: Author's version deposited in accordance with the copyright policy of the publisher. The definitive version of this article is available at
Faculty / Department / School: Historic - Faculty of Business - Department of Finance and Banking
Date Deposited: 11 Oct 2007 00:29
Last Modified: 02 Jul 2013 22:34
Uncontrolled Keywords: offer prices; offer pricing; Australian industrial initial public offers
Fields of Research : 15 Commerce, Management, Tourism and Services > 1502 Banking, Finance and Investment > 150205 Investment and Risk Management
14 Economics > 1402 Applied Economics > 140209 Industry Economics and Industrial Organisation
14 Economics > 1401 Economic Theory > 140104 Microeconomic Theory
Socio-Economic Objective: B Economic Development > 91 Economic Framework > 9102 Microeconomics > 910206 Market-Based Mechanisms
Identification Number or DOI: 10.1111/j.l467-629x.2004.00137.x

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