Performance of sponsored IPOs in the Nordics

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School of Business | Master's thesis
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Objectives of the study The objective of the study is to provide further evidence on the short- and long-term performance of IPOs backed by either a private equity (PE) or a venture capital (VC) sponsor. Private equity has been a growing asset class in the past decade and academia has provided increased attention to the IPOs backed by a financial sponsor. The past results seem to be pointing towards less underpricing and less underperformance of sponsored IPOs (especially PE ones), however the results are somewhat inconclusive. Thus, my thesis is broadening the evidence of sponsored IPOs and increasing the scarce Nordic evidence. Nordics provide an interesting sample of sponsored IPOs as the financial sponsor sector is rather closed, less developed but increasingly active. Data The dataset includes IPOs from the Nordics through a 20-year timespan from January 2000 to December 2019. Nordics include Denmark, Finland, Norway and Sweden and both the main markets as well as alternative exchanges such as First North Growth Market and Oslo Stock Exchange. Total number of IPOs included in the analysis is 483 of which 58 are PE backed, 36 VC backed and 389 are nonsponsored. Abnormal initial return is used in estimating the underpricing of IPOs. For long-term performance, Buy-and-Hold Abnormal Return (BHAR) is used for each of the samples. Results The results do not provide evidence on certification effect nor that the sponsored IPOs would be less underpriced compared to nonsponsored IPOs. Some indication of the opposing effect that the sponsored IPOs would be more underpriced is prevailing, but these results are not statistically significant. In the long-term the results indicate that venture capital backed IPOs would be underperforming both the market, and their nonsponsored counterparts. On the contrary, results suggest that private equity backed IPOs would be outperforming the market. The performance of PE backed IPOs is also in par, or better compared to the nonsponsored IPOs, which provide indication that PE backed IPOs would outperform their nonsponsored counterparts in the longterm. These results are also statistically significant.
Thesis advisor
Torstila, Sami
private equity, venture capital, initial public offering, post-IPO performance
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