Are IPOs really overpriced?

Purnanandam and Swaminathan [Purnanandam, A., Swaminathan, B. 2004. Are IPOs really underpriced? Review of Financial Studies, 17, 811–848.] find that IPOs are overvalued at the offer price relative to value metrics based on industry peer price multiples. I discuss some possible problems in their valuation methodology and find that IPOs are not overvalued after steps are taken to address the problems. More importantly, when I examine the long-run performance of IPO firms and their industry peers, I find that IPOs do not underperform their industry peers in the 5 years after IPO. This casts doubt to the argument that IPOs are overvalued.