The Long-run Share Price Performance of Initial Public Offerings in the Nordics: Insights to the Effects of Determining Factors of Abnormal Returns

Jakob Windolf-Nielsen & Philip Alexander Pamperin Krejler

Student thesis: Master thesis


Being a listed firm is associated with great benefits as well as costs. The transition from being private to becoming a public firm through an initial public offering (IPO) therefore constitutes a major decision for the existing shareholders. It is thus no surprise that IPOs have for a long time been a topic of interest within the financial and economic literature. The purpose of this study is to contribute to the existing literature by investigating the long-run abnormal returns of Nordic IPOs by using a sample of 432 firms that were listed between 1 January 2000 and 31 December 2017. This study also aims to provide evidence whether specific offering characteristics (underwriter reputation, free float, type of shares offered, and offer price) and other characteristics (private equity (PE) ownership and first day return) may contribute to explain the long-run performance of IPOs. Finally, this paper provides evidence regarding the use of different benchmarks when measuring long-run abnormal performance of IPOs. The empirical findings of this paper contrast with those of previous studies, as the long-run abnormal returns found in this study are generally positive and statistically insignificant. These results may, however, be due to the time-period investigated, which is characterized by increasing equity prices and a sharp increase in IPO activity since 2011. This study further provides evidence that PE-backed IPOs exhibit higher returns, although not statistically significant, and that these superior returns may not necessarily be due to PE-affiliation but rather differences in firm characteristics. With regards to the different variables tested, there is only limited evidence that these affect the long-run performance of IPOs. More specifically, underwriter reputation is found to have a positive relationship with abnormal returns, however, only when the IPO is conducted through an open price offering. Furthermore, the findings also suggest that pricing below the initial offering range is related to better long-run performance. Finally, this paper finds that the abnormal returns are highly sensitive to the benchmark approach applied, with a peer group approach yielding the most comparable returns.

EducationsMSc in Finance and Investments, (Graduate Programme) Final Thesis
Publication date2019
Number of pages118