The Valuation of Biotech Ipos

Posted: 24 Aug 2005

See all articles by Re-Jin Guo

Re-Jin Guo

University of Illinois at Chicago - Department of Finance

Baruch Lev

New York University - Stern School of Business

Nan Zhou

University of Cincinnati - Lindner College of Business

Multiple version iconThere are 3 versions of this paper

Abstract

The valuation of initial public offerings (IPOs) is of considerable interest, given the important role these enterprises play in economic growth and investors' decisions. IPO valuation is particularly challenging due to the meager information available about new enterprises at offering dates. We extend the research on IPO valuation in various directions: First, we penetrate deep beyond the traditional proxies for value drivers, like R&D expenditures and cash flows, by defining and testing a host of specific product-related and competitive environment value drivers; second, we examine IPO valuations at three distinct phases of the going-public process; third, we employ both the direct valuation and relative valuation approaches; and fourth, we round up the analysis by examining the long-term performance of IPOs. Based on a sample of biotech IPOs that went public in the 1990s, we document the overwhelming importance of product-related and intellectual property fundamentals, as well as the irrelevance of several key signals, such as venture capital backing and the quality of underwriters, which played prominent roles in previous research.

Keywords: Valuation, Biotech IPOs, Non-Financial information

JEL Classification: M40, G30, D46

Suggested Citation

Guo, Re-Jin J. and Lev, Baruch Itamar and Zhou, Nan, The Valuation of Biotech Ipos. Journal of Accounting, Auditing and Finance, Vol. 20, No. 4, pp. 423-459, Fall 2005. Available at SSRN: https://ssrn.com/abstract=695982

Re-Jin J. Guo

University of Illinois at Chicago - Department of Finance ( email )

2431 University Hall (UH)
601 S. Morgan Street
Chicago, IL 60607-7124
United States
312-413-3718 (Phone)

Baruch Itamar Lev (Contact Author)

New York University - Stern School of Business ( email )

40 West 4th Street, Suite 400
New York, NY 10012
United States
212-998-0028 (Phone)
212-995-4001 (Fax)

HOME PAGE: http://www.baruch-lev.com

Nan Zhou

University of Cincinnati - Lindner College of Business ( email )

P.O. Box 210211
Cincinnati, OH 45221-0211
United States

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