Initial public offerings in Brazil (2004-2006): Valuation with the use of multiples and discounting of cash flows using the appropriate cost of equity

Resumen

The pricing process of new shares in IPOs has been under study in several countries. This paper initially looks at the valuation process using multiples and seeks to classify the new shares under two categories: underpriced or overpriced at the time of the IPOs. Analysis of the cost of equity, comparing betas at the time of the offerings (usually calculated as the betas of comparable companies) and the betas of the companies after 12 months of trading, is also carried out. Companies in the sample are those that went public between 2004 and 2006. Results indicated that companies were not undervalued, even after some high short-term returns. However there is no statistical evidence that they were overvalued. Finally, results indicated that betas after twelve months of trading are signi?cantly higher than the comparable companies? betas used at the time of the IPOs.