Using a unique dataset of 41 IPOs from 2005 to 2015, we investigate the underpricing situation in the NASDAQ OMX Stockholm stock exchange. Our findings show a mean underpricing of 4.9% for the period, with values ranging from -20% to 28.3%. Further, we use a set of statistical models to explore the impact on underpricing from the issuing company’s age and size, choice of underwriter, their line of industry, and the size of their offering, all with some surprising results.

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When a firm decides to go public, two abnormalities often occur. The first is called underpricing and can be defined as a capital loss made by the company the first day of trade due to that the offer price is lower than the closing price after the first day of trade. The increase in stock value is equal to capital the issuing firm could have gained initially; this capital loss is referred to as the “money left on the table”. The second abnormality, underperformance, is a result from underpricing. It means that the stocks that were underpriced the first day also tend to underperform 3-5 years after the initial public offering (IPO) compared to competitors within the same industry. These two abnormalities together constitutes a problem for the firm because they loose money. However it also enables investors to make a quick profit. There are many studies covering this area, however mostly made by Americans, therefore the aim of this report is to investigate whether the two abnormalities exist on the Swedish market. In order to fulfill the purpose, companies that were listed 1998-2007 were investigated. Their stock performance is analyzed both on the day of IPO, where we found that 51% of the companies listed were underpriced, with an average of 23%. Further, the average “money left on the table” per company was 3.9 MSEK. The stock prices have also been analyzed on a one- as well as a five year period after the IPO in order to analyze the long-run performance and later compare it to the rest of the industry as well as industry index. We found that most of the companies that where underpriced also tend to follow underperformance. However, how long they underperform depends in which industry they operate. The IT industry, for example had a negative performance after 5 years whereas the Industrials industry has the turning-point from negative performance before 5 years.

<p>When a firm decides to go public, two abnormalities often occur. The first is called underpricing and can be defined as a capital loss made by the company the first day of trade due to that the offer price is lower than the closing price after the first day of trade. The increase in stock value is equal to capital the issuing firm could have gained initially; this capital loss is referred to as the “money left on the table”. The second abnormality, underperformance, is a result from underpricing. It means that the stocks that were underpriced the first day also tend to underperform 3-5 years after the initial public offering (IPO) compared to competitors within the same industry.</p><p>These two abnormalities together constitutes a problem for the firm because they loose money. However it also enables investors to make a quick profit. There are many studies covering this area, however mostly made by Americans, therefore the aim of this report is to investigate whether the two abnormalities exist on the Swedish market.</p><p>In order to fulfill the purpose, companies that were listed 1998-2007 were investigated. Their stock performance is analyzed both on the day of IPO, where we found that 51% of the companies listed were underpriced, with an average of 23%. Further, the average “money left on the table” per company was 3.9 MSEK. The stock prices have also been analyzed on a one- as well as a five year period after the IPO in order to analyze the long-run performance and later compare it to the rest of the industry as well as industry index. We found that most of the companies that where underpriced also tend to follow underperformance. However, how long they underperform depends in which industry they operate. The IT industry, for example had a negative performance after 5 years whereas the Industrials industry has the turning-point from negative performance before 5 years.</p>

Background: Acquiring capital is one of the most fundamental necessities for an enterprise. The discussed ways of doing so by this thesis, are the so called Initial Public Offerings (IPOs) and Seasoned Equity Offerings (SEOs). Although engaging in an IPO is a desire for most of the newly started firms, the process of introduction to the global market and the results of it are far from smooth and problem free. One of the main unknowns that issuers face is underpricing. Theory suggests that mechanisms for undervaluing the new stock have been devised, so that certain parties can benefit by allocation on the market. Purpose: The purpose of the study is to investigate any possible relationship between the level of industrial diversification and the level of short-run underpricing of the two most common asset issuances - Initial Public Offerings and Seasoned Equity Offerings. Further on, it is of use to compare the severity of diversification’s effect on underpricing of IPOs and SEOs. Method: This research is basically solely quantitative. A database for levels of diversification and industrial underpricing for the companies that conducted IPOs and SEOs in the given time period was compiled. Statistical calculations were conducted to examine possible relationships between the variables. Conclusion: The paper could not see any relevant relationship between the degree of industrial diversification and the amount of “money left on the table”. The conclusion can be drawn that investors apparently do not consider the degree of industrial diversification when assessing the value of a company.

In Chinese culture, certain digits are considered lucky and others unlucky. This thesis evaluates how numerical superstition affects financial decision-making in the Chinese A-share IPO market for the period between 2003-2015. Evidence has been found that suggests that numerical superstition influences the initial return on the issuing day of A-share IPOs on the Shanghai exchange. On this exchange newly listed firms with the unlucky number 4 and lucky numbers 6 and 8 in their ticker are initially traded at a discount. A superstition effect for the lucky numbers 6 and 8 dissipates after the first trading day but remains visible after the IPO for the unlucky number 4 and disappears within a month. The Shenzhen exchange showed no effects of numerical superstition on the initial return of the first trading date. The additional regression results indicate that after one month and onwards, having an unlucky number in a ticker has a negative influence on IPO underpricing . After the 3rd and 6th month the lucky number 6 is has a significant negative impact on stock return.

An alternative way to invest on the stock market is to invest in IPO’s. An IPO (InitialPublic Offering) is the first time a company goes public on a stock market, giving outshares to private investors and financial institutions. However, there might be someuncertainties about the share price as it never has been traded on the stock exchangebefore and it could therefore be difficult to determine a reasonable value for the shareprice. Consequently, if the offering price for the investor is significantly lower thanthe “correct valued” price it will generate positive initial return during the first tradingday and this phenomenon is labelled as underpricing, generating more “money on thetable”. Still, previous researches display an underperformance among IPO’s during alonger period after the introduction compared to already established companies withinthe same sector, arguing that investors should sell their shares early after the firsttrading day.The objective of this study is therefore to determine if underpricing exists for IPO’son the Swedish stock exchange and if there are any differentiations amongst sectors,and also to investigate two different Buy-and-Hold strategies. A final objective for thestudy is to determine if the level of underpricing is affected by some explanatoryvariables.With a quantitative study and a longitudinal approach, the results confirm the effect ofunderpricing for IPO’s on the Swedish stock exchange, generating an averageunderpricing of 5.56%. Additionally, this study cannot display any different medianunderpricing between industry sectors. However, it contradicts with theunderperformance phenomenon, indicating an overperformance for longer Buy-and-Hold strategies. Lastly, a regression of explanatory variables trying to explain thelevel of underpricing demonstrates no statistically significant results.

Prior relative studies document that the initial underpricing and long-term underperformance of IPOs are due to information asymmetry and investors¡¦ misevaluations. However, these studies rarely identify the source of information asymmetry. The purpose of this study is to identify the contribution of R&D to information asymmetry. We then discuss the influence of R&D on initial underpricing of IPOs, and examine whether the long-term underperformance exists in R&D-intensive companies or not. Based on a sample of 702 Taiwen IPOs issued during 1991-2003, this study identify the source of information asymmetry ¡X the R&D activities of issuers. Our findings indicate that these activities significantly affect both the initial underpricing of IPOs and their long-term performance. The results can be summarized as follows. (1) R&D is positively correlated with underpricing. (2) R&D is positively related to long-term performance.

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We analyze institutional allocation in initial public offerings (IPOs) using a new data set of R.O.C. offerings between 2005 and 2006. We document a positive relationship between institutional allocation and day one IPOs returns. This is partly explained by the practice of giving institutions more shares in IPOs with strong premarket demand, consistent with Book Building theories. However, institutional allocation also contains private information about first-day IPOs returns not reflected in premarket demand and other public information. Our evidence supports Book Building theories of IPO underpricing, but suggests that institutional allocation in Underpriced issue is in excess of that explained by Book Building alone.