Underpricing and long-run performance of Norwegian initial public offerings : An empirical investigation of factors that impacts short and longterm returns of Norwegian initial public offerings

Abstract

In this master's thesis, we have investigated several factors that could account for the underpricing and long-term performance of initial public offerings in Norway. We used size, equity beta, and a PE/VC dummy variable as explanatory factors for underpricing. We extended the Fama-French (1992) multifactor model to account for liquidity and momentum in the long-run performance. We also utilize both cumulative abnormal returns (CAR) and buy-and-hold returns (BHR) for the long-run analysis. Our findings show that PE/VC-sponsored IPOs are more underpriced, but not at a statistically significant level. Size and risk do not impact the level of underpricing at a statistically significant level either. In terms of long-run performance, CAR exhibits underperformance of PE/VC-sponsored IPOs, with smaller firms underperforming to a larger extent. BHR results vary drastically over time between PE/VC and non-sponsored firms, but this seems to be a result of market dynamics as opposed to sponsoring. None of the risk-adjusted models return significant alphas, but value-weighted portfolios indicate slight underperformance for PE/VCsponsored IPOs. Covid-19 also had an influence on our results, as PE/VC-sponsored IPOs significantly outperformed non-sponsored IPOs for a short duration. Lastly, both equally- and value-weighted portfolios’ market exposure was influenced by the pandemic.