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Article: IPO underpricing, firm quality, and analyst forecasts.(initial public offering)
- Article from:
- Financial Management
- Article date:
- June 22, 2007
- Author:
CopyrightCOPYRIGHT 2007 Financial Management Association. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)
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We find that IPO underpricing is positively related to post-IPO growth in sales and EBITDA, but is not significantly related to growth in earnings. Our evidence suggests that accrual reversals or earnings management may cause this inconsistency. We interpret the growth rates of sales and EBITDA as measures of firm quality, and conclude that our evidence supports the notion that IPO firms with greater underpricing are of better quality. Our tests on analysts 'earnings forecast errors show that analysts are less positively biased in their earnings forecasts for IPO firms that have greater underpricing.
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In this paper we examine the relation ...
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