Pricing IPOs: An Approach for Spanish Firms
Susana Álvarez

The purpose of this paper is to analyse how IPO initial return volatility affects the valuation of firms that go public. The goal is to test whether the initial return volatility for evaluating the pricing of IPOs is relevant on the Spanish capital market, bearing in mind that the degree of ex-ante uncertainty regarding the value of the firm for IPOs in Spain is lower than in other countries, as is the level of underpricing. I also analyse how the main explanations found in the literature for the anomaly of underpricing are affected by this new metric of return volatility. The methodology used is maximum likelihood estimation (MLE) because it has important advantages. The main advantage of this approach is that it allows the estimation of the influence of each characteristic on both the level and the uncertainty of firm-level initial returns. The MLE affects positively to the efficiency of the estimations. Consistent with IPO theory, both the asymmetry of information hypothesis and the hot IPO market hypothesis are confirmed in this study. The results do not provide conclusive support for the signalling hypothesis for underpricing.

Full Text: PDF     DOI: 10.15640/jfbm.v3n1a7