Analysis of the Development of Danish IPOs and their Possible Underpricing in the Period 1997-2018

Magnus Gregers Petersen & Simon Sylvest Laustsen

Student thesis: Master thesis


The following master thesis focuses on the underpricing of initial public offerings (IPOs) of Danishcompanies on the stock market from 1997 to 2018. The paper analyzes 45 IPOs, and the factors, which haveaffected the IPO's price and performance for the first two years following its initial offering. The motivationfor this thesis is to explore which factors affect underpricing of Danish companies and how to capitalize onthis investing in the future. Different economic theories and the method, by which a company files, can be used to assess theamount that an IPO is underpriced. These factors have shown themselves to be both internal and external.Our method to identify these factors was based on a theoretical analysis of the book-building method andhow it has affected the way, Danish IPOs are filed. We used the old method of an auction based IPO systemto illustrate how the book-building method has changed the market and consequently increased thepotential for underpricing on the first day. Our analysis shows that an investor, on average, should expect a 10.25% return on the first day of theIPO. This means that 69.89% of the IPOs would perform better than their benchmark on the first day.Within the first week, an investor can expect an average return of 8.47%. On the contrary, the return onIPOs after two years will decline to -20.69%. We thereby show that an investment in an IPO can be a greateconomic opportunity as a speculative investment within the first week. However, if you were consideringIPOs as a long term investment, you would be better off considering an investment in a benchmark oralready established company on the Danish stock-exchange. One factor to underpricing we show is that ingeneral, larger companies perform better than smaller companies, based on the market value of the firm.Further notice need to be taken, depending on if you are an institutional or private investor. This is becausebook-building method puts the institutional investor in a favorable position. This is apparent in how theunderwriter distributes the stocks, often in very favorable position for the institutional investors.

EducationsMSc in Finance and Accounting, (Graduate Programme) Final Thesis
Publication date2019
Number of pages105