Do Risk Factors Matter in the IPO Valuation?

Abdou, Khaled; Dicle, Mehmet F.

Do Risk Factors Matter in the IPO Valuation?

Journal of Financial Regulation and Compliance, Vol. 15, No. 1, pp. 63-89, 2007

45 Pages Posted: 10 Apr 2007 Last revised: 11 May 2009

Mehmet F. Dicle

Loyola University New Orleans - Joseph A. Butt, S.J. College of Business; Research ATA, LLC

Abstract

The paper investigates whether all of the risk factors priced during the Internet bubble period. To answer this question, we use a unique hand collected dataset from public prospectuses for companies that issued an initial public offering during the Internet bubble period. We propose three hypotheses: 1- The risk factors mentioned in the prospectus are important for IPO trading and therefore affect IPO underpricing, 2- Risk factors affect the IPO deal attributes, and 3- The number of risk factors cited by the issuing firm is affected by direct participants such as venture capitalists and investment bankers.

Keywords: Risk Factors, IPOs, Underpricing, Internet Bubble

JEL Classification: G32, G24, G14

Suggested Citation: Suggested Citation

Abdou, Khaled and Dicle, Mehmet F., Do Risk Factors Matter in the IPO Valuation?. Journal of Financial Regulation and Compliance, Vol. 15, No. 1, pp. 63-89, 2007. Available at SSRN: https://ssrn.com/abstract=687438