| In this paper I test the efficiency with which the information contained in accounting-based value metrics, which use accounting information as inputs, is incorporated into initial public offering early market prices. I examine the association between these value metrics and first-day underpricing and three-year returns. I find accounting-based value metrics relative to market prices are associated with both the first-day underpricing and three-year returns, suggesting that the information contained in these metrics, which is available at the date of the initial public offering, is not efficiently impounded into prices. I then test to determine whether variations in investor sentiment affect the efficiency with which accounting-based value metrics are impounded into prices. I find that periods of more positive investor sentiment are associated with more inefficient use of accounting information, consistent with theoretical models of investor sentiment. |
