The Usefulness Of Accounting Fundamentals And Other Prospectus Information In The Valuation Of IPO Firms

The authors of this paper empirically examine the usefulness of (i) forward-looking accounting fundamentals, and (ii) 'Other prospectus information' variables that prior literature suggests are value drivers, in the valuation of Australian Initial Public Offer (IPO) firms. They begin by examining the extent to which IPO offer price and first-day closing price is captured by accounting fundamentals. They find that on average, accounting fundamentals explain 57% of the prospectus offer price and 50% of the closing price on the initial day of trading. The strong association between IPO prices and accounting fundamentals is robust to controlling for scale effects and also the inclusion of variables that correlate with continuing values and potential measurement errors.