Go Big or Go Home:A quantitative study on the role of institutional cornerstone investors in Initial Public Offerings and their relationship to IPO underpricing

Abstract: This study examines the correlation between institutional investors as cornerstone investors and the underpricing of initial public offerings (IPOs) in Sweden. The study analyzes a total sample of 371 observations between 2015 and 2022, including 165 observations backed by institutional cornerstone investors, 163 observations backed by non-institutional cornerstone investors and 43 observations without cornerstone investors. Using two-sided t-tests, the results of this study confirm that both IPOs in general and institutionally cornerstone-backed IPOs, in particular, have been underpriced during the examined period, with an average underpricing of 8.7% and 17.7%, respectively. Moreover, with support from regression models, the analysis reveals that IPOs backed by non-institutional cornerstone investors have been significantly more underpriced than the average IPO. The study offers complementary evidence supporting previous theories on IPO underpricing and provides novel insights into the mechanisms of IPO underpricing in Sweden.