Valuing IPOs using price-earnings multiples disclosed by IPO firms in an emerging capital market

Michael Arthur FIRTH, Yue LI, Shuye, Steven WANG

Research output: Journal PublicationsJournal Article (refereed)peer-review

23 Citations (Scopus)


Existing studies show that markets use comparable firm multiples to price IPOs. This study explores IPO valuations in an emerging market where reliable comparable price multiples may not be readily available, or cannot be reliably identified. In particular, we examine the value relevance of price-earnings multiples disclosed by managers in IPO prospectuses in China. Using a sample of IPOs from 1992 to 2002, we find that price-earnings multiples disclosed by IPO firms provide significant power in explaining price formation in this emerging market. We also find that price-earnings multiples disclosed by IPO firms after 1999, when the China Securities and Regulatory Commission relaxed its internal guideline for approving IPO applications, are more informative. The results are robust to a variety of empirical model specifications. This study contributes to the existing IPO literature by showing that the disclosure of price-earnings multiples provides a mechanism for IPO firms to convey information about IPO firm quality when reliable comparable firm multiples may not exist.
Original languageEnglish
Pages (from-to)429-463
Number of pages35
JournalReview of Pacific Basin Financial Markets and Policies
Issue number3
Publication statusPublished - 1 Sept 2008


  • Valuation; IPOs; price-earnings multiples

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