Please use this identifier to cite or link to this item: https://ir.iimcal.ac.in:8443/jspui/handle/123456789/3045
Title: Comparable firm’s P/E multiple and IPO valuation: an empirical investigation for Indian IPOs
Authors: Sahoo, Seshadev
Rajib, Prabina
Keywords: IPO
Peer group
P/E
Growth
Book value
Risk
Comparable firm
Issue Date: Nov-2013
Publisher: Indian Institute of Management Calcutta, Kolkata
Series/Report no.: Vol.40;No.1-2
Abstract: We examine the influence of the comparable P/E (selected on different parameters, i.e., industry, revenue characteristics, book value, and return on net worth) on IPO pricing. The sample comprises of 120 IPOs issued in India during the period 2002–2007. We find that the comparable P/E chosen on the basis of industry alone shows poor estimation power. However, significant improvement in the estimation power of the comparable P/E approach is observed while tapering down the list of comparable firms from the identical industry (affiliating IPO firm) on the basis of revenue characteristics, book value, and return on net worth. We suggest that comparable firms selected from identical industry further adjusted with revenue characteristics and return on net worth provide the most efficient P/E multiple for evaluating IPO price. This paper also finds that IPO price estimated by multiplying current EPS of the IPO firm with benchmark peer group average P/E is positively associated with both offer price and list price, suggesting that higher value can be expected for IPOs relating to high-valued peer group and vice versa. Valuations tend to be more accurate (adjusted R 2 = 77.5 %), when the price is estimated on the basis of comparable peer group P/E along with a set of financial information. The offer price and list price are found positively and significantly influenced by the financial information, i.e., book value, growth and risk along with peer group P/E.
Description: Seshadev Sahoo, Finance and Accounting Group, Indian Institute of Management Lucknow, Lucknow, India; Prabina Rajib, Finance and Accounting Group, Vinod Gupta School of Management, IIT Kharagpur, Kharagpur, India
p.27-46
Issue Editor – Bhaskar Chakrabarti, IIM Calcutta, Kolkata, India
URI: https://doi.org/10.1007/s40622-013-0008-y
https://ir.iimcal.ac.in:8443/jspui/handle/123456789/3045
ISSN: 0304-0941 (print version) ; 2197-1722 (electronic version)
Appears in Collections:Issue 1 & 2, June-September 2013

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