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Submitted By eliahu
Words 13092
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Journal of Financial Economics 53 (1999) 409 }437

Valuing IPOs
Moonchul Kim , Jay R. Ritter *
Department of Accounting, KyungHee University, C1 Hoegie-Dong, Dongdaemun-Ku, Seoul 130-701, South Korea Department of Finance, School of Business Administration, University of Florida, Gainesville, FL 32611-7168, USA Received 3 June 1997; received in revised form 18 August 1998

Abstract The use of accounting information in conjunction with comparable "rm multiples is widely recommended for valuing initial public o!erings (IPOs). We "nd that the price}earnings (P/E), market-to-book, and price-to-sales multiples of comparable "rms have only modest predictive ability without further adjustments. This is largely due to the wide variation of these ratios for young "rms within an industry. P/E multiples using forecasted earnings result in much more accurate valuations than multiples using trailing 1999 Elsevier Science S.A. All rights reserved. earnings. JEL classixcation: G24 Keywords: Initial public o!erings; Valuation; Comparable "rms

* Corresponding author. Tel.: #1-352-846-2837; fax: #1-352-392-0301. E-mail addresses: kimc@nms.kyunghee.ac.kr (M. Kim), jritter@dale.cba.u#.edu (J.R. Ritter) This paper is based on Moonchul Kim's University of Illinois Ph.D. dissertation. We would like to thank seminar participants at Boston, Emory, Georgetown, Humboldt (Berlin), and Vanderbilt Universities, the Universities of Miami and Texas, the Stockholm School of Economics, the Chinese University of Hong Kong, the New York Federal Reserve, the National Bureau of Economic Research, the 1996 Harvard Financial Decisions and Control Workshop, the 1997 Tuck Underwriting Conference, and Alan Eberhart, Chris Barry, Harry DeAngelo, Linda DeAngelo, Craig Dunbar, John Fellingham, Kathleen Weiss Hanley, Chris James, Linda Killian, Inmoo Lee, Joshua Lerner, Tim Loughran, Michael Ryngaert,

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