An Event Study of the Long Term Performance of IPOs on Nasdaq First North Growth Market in Scandinavia

Abstract

This master’s thesis examines the long-term IPO performance of companies listed on Nasdaq First North Growth Market in the period 2006 to 2022, utilizing an event study approach. The empirical study is based on data from 316 publicly listed companies. Prior studies consistently find that, on average, smaller companies underperform in the long-term subsequent to their initial public offerings. However, prior empirical work has focused on companies outside the micro-cap category, why this paper aims to address the characteristics found in this particular market. Five hypotheses are formulated and tested to investigate the long-term IPO performance. The empirical findings show that IPOs listed on Nasdaq First North Growth Market exhibit abnormal returns within the range of -20% to -9%, dependent on the underlying index, whereas IPOs listed on other Scandinavian markets show abnormal returns of 0.4%. Thus, on average, stocks listed in the Scandinavian growth market significantly underperform relative to stocks listed on other Scandinavian markets. However, when the initial return period is excluded from the dataset, IPO performances records slightly improved, yet statistically insignificant, abnormal returns. Between countries, Swedish growth-stocks perform the best, whereas Finland and Denmark perform worse, the latter showing the worst underperformance over a 5-year period. Furthermore, substantial variances in abnormal returns are shown across industries. The thesis also investigates how selected determinants influence the abnormal returns. In specific, a company’s EBITDA, Pre-money-value, stock liquidity, ownership-structure and initial return significantly influences the long-term abnormal return. The paper’s contribution to the academic field is a more nuanced understanding of the IPO performance for micro-cap companies. Theories, that has been formulated in other markets as an explanation for the long-term IPO performance phenomena, are highly applicable to what these findings show, although overoptimism and fads seem to be the most valid explanations when measuring long-term performance. The thesis also shows that structural market differences between countries in Scandinavia affects the long-term performance. The findings suggest that investors should be highly careful when investing in micro-cap growth companies in Scandinavia and should investigate firm, market and country characteristics before considering investing in any of these.