Essays on initial public offerings

The present dissertation includes three essays on initial public offerings (IPO). The first chapter investigates the impact of venture capital (VC) syndicate size and diversity on the IPO and post-IPO performances of investee companies. We provide evidence that firms backed by larger and more diverse VC syndicates experience greater underpricing and lower post-IPO profitability. We suggest that this might be the consequence of coordination problems and conflicts of interests within large and heterogeneous VC syndicates which ultimately results in poorer added value for the investee companies. We also provide some evidence that the negative impact of VC syndicate size and diversity on IPO underpricing can be mitigated by the existence of alternative monitoring mechanisms such as bank loans. In the second essay, using text sentiment analysis, we investigate the relationship between tone, length and information content of prospectuses and underpricing in a sample of UK IPOs between 2004 and 2012. The peculiar feature of the UK IPO market is the wide use of fixed-priced offerings to go public, which, contrary to bookbuilding, does not allow any price discovery. Our results show that, for fixed-priced IPOs, the length of the admission document is positively correlated to the offer price and negatively correlated to underpricing and to ex-post volatility, whereas different tone and information content in the document seem to matter less. We further show that admission documents have become substantially longer for all types of IPOs since the recent financial crisis but that their impact on IPO pricing appears to be significant only during the pre-crisis period. The last chapter, the third essay, investigates how the market for European IPOs has changed, if at all, since the recent financial crisis. For this purpose we have constructed a comprehensive dataset of European IPOs between 2000 and 2012. Our research focuses on whether and how the costs, both direct and indirect, of going public have changed in the wake of the recent financial crisis. Our results suggest that both underpricing and underwriting fees have decreased since 2007. A closer look at the underwriting markets also shows that, since the financial crisis, underwriters have tended to syndicate more, and that there are some newcomers among the top ten underwriters. Additionally, we shed some light on the determinants of going public during post-crisis period, and we find that traditional models are of very little use in explaining IPO decisions during the recent recession