Long-term IPO Performance: A Scandinavian Event-time Study

Mathias Maegaard Poulsen & Philip Raunholt Breuner Nielsen

Student thesis: Master thesis


The thesis examines the long-term performance of Scandinavian initial public offerings (IPOs) on the three primary stock exchanges using a sample of 153 firms going public from 2004 to 2014. In addition, the thesis examines determinants for the observed long-term IPO performance by running multiple regression models on a subsample of 130 Scandinavian IPOs. To carry out the performance evaluation, the study utilises the event-time methodology where abnormal performance is measured by calculating Cumulative Abnormal Returns (CAR) and Buy-and-Hold Abnormal Returns (BHAR). The IPO returns are adjusted by the STOXX Nordic Total Market Index and a cap adjusted version of the STOXX Nordic Total Market Index to take return characteristics of different sized IPOs into consideration. Additionally, the thesis applies a bootstrapping methodology to adjust for positive skewness when analysing the buy-and-hold abnormal return measures. Determinants for the three- year IPO performance are identified using OLS-regressions including firm specific, issue specific and market specific explanatory variables.
The analysis finds that the IPO underperformance phenomenon does not extend to the Scandinavian market. Instead, the study finds positive performance coefficients for all four BHAR measures and three out of four CAR measures. However, not all are significant and the most important measure, the cap-adjusted BHAR with a performance coefficient of 11.7%, is insignificant when testing against our bootstrapped critical values. Further, one measure, the cap-adjusted CAR, has negative performance of -4.1%. Therefore, the study finds weak evidence of IPO overperformance in Scandinavia but do not allow for unambiguous conclusions as we fail to consistently confirm that performance is statistically different from zero. With respect to the determinant analysis, the study finds that the uncertainty hypothesis is significantly explaining long-term performance, as the natural logarithm of post-IPO assets and the natural logarithm of firm age at the IPO date have significant and positive explanatory power for three-year IPO performance. Further, the debt to equity ratio and having a lead Scandinavian underwriter are identified as positive determinants for long-term IPO performance. On the other hand, the exercise of overallotment shares and hot-period IPOs are identified as negative determinants for long-term IPO performance.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
Publication date2017
Number of pages109
SupervisorsSøren Plesner