Preface To: Valuing IPOs Using Price-Earnings Multiples Disclosed by IPO Firms in an Emerging Capital Market

Pacific Basin Financial Markets and Policies, Vol. 11, No. 3, pp. 429-463, 2008

Posted: 20 Oct 2009

See all articles by Michael Firth

Michael Firth

Lingnan University - Department of Finance and Insurance

Yue Li

University of Toronto - Joseph Rotman School of Management

Steven Shuye Wang

School of Business, Renmin University of China

Date Written: September 1, 2008

Abstract

Existing studies show that markets use comparable firm multiples to price IPOs. This study explores IPO valuations in an emerging market where reliable comparable price multiples may not be readily available, or cannot be reliably identified. In particular, we examine the value relevance of price-earnings multiples disclosed by managers in IPO prospectuses in China. Using a sample of IPOs from 1992 to 2002, we find that price-earnings multiples disclosed by IPO firms provide significant power in explaining price formation in this emerging market. We also find that price-earnings multiples disclosed by IPO firms after 1999, when the China Securities and Regulatory Commission relaxed its internal guideline for approving IPO applications, are more informative. The results are robust to a variety of empirical model specifications. This study contributes to the existing IPO literature by showing that the disclosure of price-earnings multiples provides a mechanism for IPO firms to convey information about IPO firm quality when reliable comparable firm multiples may not exist.

Keywords: Valuation, IPOs, price-earnings multiples

JEL Classification: G24

Suggested Citation

Firth, Michael and Li, Yue and Wang, Steven Shuye, Preface To: Valuing IPOs Using Price-Earnings Multiples Disclosed by IPO Firms in an Emerging Capital Market (September 1, 2008). Pacific Basin Financial Markets and Policies, Vol. 11, No. 3, pp. 429-463, 2008, Available at SSRN: https://ssrn.com/abstract=1490830

Michael Firth (Contact Author)

Lingnan University - Department of Finance and Insurance ( email )

Castle Peak Road
Tuen Mun, New Territories
Hong Kong
China
+852 2616 8160 (Phone)
+852 2466 4751 (Fax)

Yue Li

University of Toronto - Joseph Rotman School of Management ( email )

Joseph Rotman School of Management
105 St. George Street
Toronto, Ontario M5S 3E6
Canada
416-978-0857 (Phone)
416-971-3048 (Fax)

Steven Shuye Wang

School of Business, Renmin University of China ( email )

Beijing
China
8610-6251-8856 (Phone)

HOME PAGE: http://rbs.org.cn

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