Market performance of Nordic initial public offerings (IPOs) and its determinants

Abstract

We study the short-run stock market performance of 219 Nordic initial public offerings (IPOs) listed between 2001 and 2016 and its determinants. Short-run stock market performance is measured by the first-day market-adjusted return. In order to identify determinants of short-run market performance we use multiple regression models with firm, market and offer specific variables in accordance with selected theories. We find that, overall, Nordic IPOs was underpriced with 4.53% on average. However, there are quite large differences in underpricing between the Nordic countries. Swedish IPOs had an average first-day return of 7.35% and Finnish 7.97%, Denmark had 5.58% while in Norway it was 0.60%. These findings suggest a downward sloping trend in the level of underpricing in the Nordics over the past decades. Furthermore, our results indicate that investor sentiment is a determinant of short-run performance of IPOs in the Nordics in general. We further find that hot issue markets, firm age, firm assets, pricing technique, offer price relative to file price range and the reputation of the underwriter are determinants of short-run market performance, but that these results vary by country, suggesting that there are different determinants of short-run performance within the Nordic countries. The overall findings on determinants support the investor sentiment theory, the hot market phenomenon and information revelation theory, while it is conflicting with the main implications of the winner`s curse theory.