Biotech IPOs: a study on the determinants of stock performance

Abstract

This thesis investigates the short-run and long-run performance of 459 Biotech IPOs issued between 1991 and 2016 in the United States, by analyzing determinants such as the underwriter's prestige, the syndicate involved, the amount of dollars raised by the company, the financial sponsors supporting the transaction and the IPO market cycle. The findings revealed that the Biotech sample suffered from less underpricing than the overall IPO market, with an average first-day return of 7.5% against 14.9% for the Aggregate sample. The presence of a private equity firm and a larger syndicate with unique underwriters seemed to help reducing the underpricing level, while the amount of proceeds exhibited a positive correlation with the first-day return. In the long-run perspective, the findings depended on which metric was applied. The buy-and-hold returns (BAHR) indicated that Biotech IPOs experience negative abnormal returns during the analyzed period, while the cumulative abnormal return (CAR) suggested that these stocks had positive abnormal returns. The results show that Biotech IPOs backed by venture capital or private equity firms have higher long-run performance when analyzing the BAHR metric, and Biotech IPOs held in high activity periods and supported by large syndicates and prestigious underwriters perform better when analyzing the CAR metric. Keywords: Biotech, IPOs, underpricing, short-run performance, long-run performance, abnormal-returns