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Biotech IPOs: a study on the determinants of stock performance

Rego de Sa Barreto, Ana Beatriz
Master thesis
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URI
https://hdl.handle.net/11250/2686601
Date
2020
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  • Master of Science [963]
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
Description
Masteroppgave(MSc) in Master of Science in Finance - Handelshøyskolen BI, 2020
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Handelshøyskolen BI

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