The Accuracy of IPO Valuation

By

ACKNOWLEDGEMENT

I would like to take this opportunity to thank my dissertation supervisor who has always shown confidence in me. He has offered his patience, remarks, propositions and understanding. Here I would also like to mention my parents who have always believed in me for all my hard work. My family, including my parents, brother and sister has endlessly supported me during my life and academics. This has helped me in making positive decisions for my life. I would also mention my peers and co-workers and appreciate their collaboration and expert advice on every circumstance. I am also grateful towards my University and my Department, the administrators, faculty members and fellow students for their support throughout this study.

DECLARATION

I declare that the material stated in this dissertation/thesis is original and does not present work of any other scholar or research study conducted in the past. Material in this study is not partially or completely published elsewhere and collected only for the purpose of this study. I also acknowledge that I have complete understanding of the requirements, guidelines, regulations and procedures of the University with respect to the endowment of higher education degree and my research work. Here, I would also like to take the opportunity to declare that I have almost exclusively followed the requirements, guidelines, regulations and procedures of the University regarding this research study.

ABSTRACT

The purpose of this paper is to enlighten and explore IPO valuation in a holistic manner. The core objective of the paper is to describe IPO evaluation and the processes and approaches adapted traditionally for analyzing the feasibility of initial public offering. Nonetheless, the paper also explores the contemporary tactics used by analysts to value initial public offerings and compare them with traditional approaches. This paper discusses diverse models, strategies and equations that can be used while evaluation of IPO. Nonetheless, the paper also describes the errors accompanying the findings extracted from the implication of a particular model or equation. Moreover, in light of previously conducted studies, this study prescribes the optimal methods, models and equations that can be implied to IPO valuation by minimizing the occurrence of errors in order to enhance the accuracy of extracted results. This analysis in this paper is based upon data collected from diverse sources which was analyzed statistically via the implication of appropriate technique in order to obtain optimal results. The results prescribed in this paper are valid due to the implication of appropriate statistical models; hence, they can be generalized and used by future researchers interested in carrying out their research under similar or bit diversified field.

TABLE OF CONTENTS

ACKNOWLEDGEMENTii

DECLARATIONiii

ABSTRACTiv

CHAPTER 1: INTRODUCTION6

CHAPTER 2: LITERATURE REVIEW9

Existing Relevant Prior IPO Research9

Valuation IPO Problem10

The Important Role of Financial Statements12

CHAPTER 3: METHODOLOGY15

Accounting Methodology for IPO Valuation15

P/E Approach for IPO Valuation16

Discounted Cash Flow Approach for IPO Valuation17

The Accuracy of Methodology for IPO Valuation18

Alternative Methodology for IPO Valuation19

Hypothesis Development19

Valuation Methodology22

P/E Comparable Model22

The Discounted Cash Flow Model24

Contribution26

CHAPTER 4: RESULTS28

CHAPTER 5: CONCLUSION42

REFERENCES44

CHAPTER 1: INTRODUCTION

Stocks have been valued differently by differently by different ...