The evalutation of IPOs and its influence on a private firm's exit decision

The current research investigates the valuation of companies going public in different phases of the IPO process, and unveils its implications on a private firm’s exit decision. The first paper focuses on how underwriters select comparable firms when valuing IPOs. We document that they perform a biased, left-truncated selection, as they omit peers with the poorest valuations compared to those selected by sell-side analysts or obtained from matching algorithms. IPOs are priced at a discount compared to peers selected by underwriters, but at a premium with regards to alternatively selected peers, even by considering peers chosen by the same underwriter acting as analyst. The second paper deals with aftermarket valuation of IPOs, focusing on the relation between the fees paid to underwriters and the services they provide to the issuer, such as price stabilization. We study whether a formal commitment by underwriters to provide ancillary services allows them to charge higher fees, and find that asking underwriters to support aftermarket valuation (i.e., stabilize stock price) is costly to the issuer, while to support liquidity is not. Underwriters stabilize IPOs that really need it, whereas the drivers of the provision of liquidity support are less clear. The third paper examines how the possibility to go public and be subsequently acquired at a higher valuation alters a private firm’s initial exit trade-off between IPO and acquisition. Firms suffering from greater information asymmetry and more severe financial constraints are more likely to go public before being acquired, rather than be directly acquired as private. These firms receive a higher valuation than that obtained by similar private targets. On the other hand, there are risks associated with two-stage exits. Less successful firms face a higher probability of delisting, with a valuation similar to what they would have obtained by selling out as private.