The Impact of Corporate Governance on IPO Underpricing in the Nordics

Abstract

This thesis examines the impact of corporate governance on IPO underpricing within the Nordic market, analyzing 774 IPOs from 2009 to 2024. Our research finds no significant evidence that corporate governance measures influence underpricing in Nordic IPOs due to the region’s high level of investor protection and robust regulatory frameworks. In contrast, corporate governance significantly affects IPO underpricing in the US and emerging markets, where legal protections are gradually less robust. Empirical tests on 3,503 US IPOs and 10,747 IPOs from Emerging Markets finds that measures such as frequent board meetings, experienced boards, green shoe options and lock-up agreements reduce underpricing by aligning long-term incentives between insiders, outsiders and underwriters. Additionally, our study finds that PE/VC-backed IPOs in the Nordics experience lower underpricing, suggesting that active ownership and governance play a crucial role in these cases. Moreover, our research reveals that underpricing is a significant predictor of six-month post-IPO performance, with underpriced IPOs yielding better returns in both the Nordics and the US suggesting a shortterm momentum effect. While corporate governance has a limited effect on IPO underpricing in the Nordics, it serves as a significant substitute for investor protection in less regulated markets.