Putting Your Best Foot Forward: Steps to High IPO Valuations

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Juan is no longer at Bryant.




The purpose of this paper is to contribute to the development of a strategically relevant theory of IPO valuation. We argue that the IPO capital market is fundamentally different from the more broadly traded exchanges in that the initial investors are not fully diversified and information is not symmetrically distributed. Our thesis is that the pricing of IPOs is driven largely by factors endogenous to the venture and therefore directly influenced by managerial decisions and actions. Our hypotheses focus on the association between a venture?s ability to minimize agency and strategic risk, and its market value. We develop these hypotheses from recent contributions from financial economics, agency theory, entrepreneurship, and strategy, and test them with data from 199 high growth ventures.

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