How is ESG disclosure perceived in IPO context: An analysis of the Nordic market

Abstract

This thesis aims to investigate how ESG factors disclosed in prospectuses affect underpricing in Initial Public Offerings of companies in the Nordic market. The thesis will reduce the gap in academic literature related to our topic. Our methodological approach involves defining instances of underpricing in a modern timeframe, 2011-2021. We utilise textual analysis to identify ESG term frequency and ESG sentiment variables used in our OLS regression models. Our findings suggest that Social term frequency and sentiment and Governance sentiment disclosure have an increasing effect on underpricing. Relevant literature suggests our results are a contradiction of the Information asymmetry model. ESG-related literature support that our results show an increase in idiosyncratic risk and market demand, resulting in higher underpricing.