IPO Underpricing in the Nordic Markets

Objectives of the study The purpose of this study is to measure underpricing and identify characteristics affecting IPO underpricing in the Nordic markets, mainly focusing on characteristics arising from information asymmetry theories. The main contribution of this study is the analysis between the First North and Regulated Market in the Nordics that has not been under scrutiny in academia before. Furthermore, this study aims to provide descriptive statistics on the companies going public. Data and methodology The final sample in this study consists of 100 companies going public in Finland, Sweden and Denmark between 2013 and 2016. In addition to initial returns, the data consists of the IPOs’ Industry Classification Benchmark, earnings during the financial year prior to listing, venture capital backing, whether the company is listed on the First North or Regulated Market, market capitalization segments for the Regulated Market and whether the issuer has bound its underwriter with a best efforts or firm commitment contract. The statistical methods used in this study are OLS regression, covariance analysis, correlation analysis and F-test. Findings of the study The sample suggests average underpricing in the Nordic context to be around 9.3% and median at 6.9%. The Regulated Market is more underpriced with an average underpricing of 13.2% compared to First North that is underpriced on average by 5.7%. Whereas the average initial returns for the Regulated Market are in line with previous research, the average initial returns for First North fall significantly below. Furthermore, an F-test indicates that the distribution of the returns differed significantly between the two markets and that the variance for First North is much higher, which indicates a higher risk level regarding initial returns. The study also provides tentative results for a weak positive relationship between initial returns and the following characteristics of IPO companies: technology-industry, positive earnings, Small Cap segment. An indicative weak negative relationship is also established between initial returns and best efforts offerings, VC-backing and First North