Initial public offerings : IPO performance and prospectus sentiment of biotechnology offerings

Abstract

This thesis investigates initial public offerings (IPOs) at the Nasdaq exchange in the United States during the time period of 2003 – November 17th, 2017. The focus of the thesis will be on the performance, both in the short- and long-run, of companies in the biotechnology industry. Textual analysis will be applied to determine the effect of prospectus sentiment on performance. From our sample of 781 observations, we find an average market-adjusted underpricing of 16.6%. The average market-adjusted underpricing is higher in the biotechnology industry relative to other offerings, but this difference is not statistically significant. For the long-run performance, the offerings in our sample perform 1.6 percentage points better relative to the market. The difference between biotechnology and non-biotechnology is not significant. Our analysis of the IPO prospectuses finds that the companies in the lowest quartile in terms of polarity score of the prospectus summary have less underpricing. Offerings in this quartile perform better in the long-run, while companies in the lower quartile of the risk factors section perform worse.