How Weights Assigned to Each Valuation Method Impact IPOs Valuation Performance?

We investigate the impact of weights assigned to each valuation method on initial public offerings’ valuation performance. Review of existing literature reveals that such valuation performance lacks examination in terms of weights assigned as most studies focus on the valuation method used per se. Accordingly, we compare between individual value estimate and fair value estimate to examine initial public offerings’ valuation performance before and after assigning weights. Whereby, underwriters assign a weight between 0% and 100% to individual value estimate produced by each valuation method used in order to reach one fair value estimate. We assess initial public offerings’ valuation performance through bias and accuracy valuation errors as well as valuation explainability. Our sample consists of 110 observations associated to initial public offerings conducted on the Moroccan stock exchange between 2004 and 2018. Results reveal that weights assigned to individual value estimate when setting fair value estimate enhance initial public offerings’ valuation performance. Specifically, valuation errors decrease while valuation explainability increases. In fact, both optimistic and pessimistic fair value estimate are closer to market price in comparison with individual value estimate. A closer analysis reveals that weights partially absorb valuation optimism and pessimism. Consequently, these weights reduce the extent of both underpricing and overpricing of initial public offerings. We conclude that combining different valuation methods enhance initial public offerings’ valuation performance. Additionally, underwriters play an important role when valuing initial public offerings by assigning specific weights to each valuation method that differ from one initial public offering to another. Results reveal that weights assigned to individual value estimate when setting fair value estimate enhance IPOs valuation performance. Specifically, valuation errors decrease while valuation explainability increases. A closer analysis reveals that weights reduce the extent of both IPOs underpricing and overpricing. We conclude that combining different valuation methods enhance IPOs valuation performance. Additionally, underwriters play an important role when valuing IPOs by assigning specific weights to each valuation method that differ from one IPO to another. Our study makes two key contributions to IPOs valuation performance First, we provide exclusive comparison of individual value estimate and fair value