Underpricing under Uncertainty: A comparative event study of the effects of Covid-19 restrictions on IPO underpricing

Abstract: This paper has studied underpricing of initial public offerings during the highly uncertain time of the Covid-19 pandemic. Sweden did not implement coercive strategies such as lockdowns compared to most other countries, which has given this study an unique opportunity to investigate how societal factors mitigating uncertainty have an impact on the IPO market. In order to answer the research question: How did Sweden's unconventional covid strategy impact IPO underpricing during Covid-19?; a sample of companies conducting an IPO from the 11th of March 2020 until 9th February 2022 in Sweden, Norway, Denmark, and the Netherlands was retrieved. By completing an event study and supplemental econometric analysis, this study was able to state underpricing as an empirical fact throughout all samples. The results also allowed us to conclude Sweden’s strategy of voluntary recommendations decreased societal uncertainty, which subsequently impacted the IPO market by significantly reducing underpricing.