Initial Public offerings in Scandinavia : an empirical assessment of underpricing and aftermarket performance in the scandinavian market : are scandinavian initial public offerings good investments?

Abstract

This thesis contributes to the existing academic literature on the initial public offering anomalies by providing findings on underpricing and aftermarket performance in the Scandinavian market between 2007 and 2016. From the analysis, we find clear evidence of underpricing, whereas no unambiguous evidence of long-term underperformance. With an average equally-weighted firstday return of 5.78%, the Scandinavian market experiences lower levels of underpricing compared to other markets such as the U.S. With regards to aftermarket performance of the initial public offering firms, the level of performance varies with the applied methods and metrics. However, when adjusting for risk we find evidence of long-term underperformance in Scandinavia, with a monthly average equally-weighted excess return of -0.7% when applying the Fama-French three-factor model. We find strong evidence of initial public offerings with cornerstone involvement to have higher first-day returns and superior performance in the aftermarket, which may be related to a potential signaling effect. The findings fill a gap in the existing literature with regards to the effect of cornerstone investors on Scandinavian initial public offerings. Further, we find that initial public offerings issued in a hot market experience significantly higher levels of underpricing. Evidence of the aftermarket performance depending on market conditions at the time of issuance is also presented. We find no clear evidence indicating that prestigious underwriters and private equity firms significantly affect the level of underpricing and aftermarket performance.