Cornerstone Investors on the Swedish IPO Market – Salvation or Damnation?
Abstract: Title: The effect of cornerstone investors on the Swedish IPO market - An event study on underpricing, aftermarket performance and effects of cornerstone investors Seminar date: 2017-05-29 Course: BUSN79: Degree Project in Accounting and Finance: Corporate Financial Management, Master level, 15 ECTS Authors: Jonathan Engman & Markus Levéen Pehrson Supervisor: Maria Gårdängen Purpose: The primary goal of this paper is to investigate cornerstone investor effect on underpricing and aftermarket performance in Swedish IPOs. By collecting an original and meticulous data set, the study examines underpricing, measured as first day returns, and aftermarket performance, measured in abnormal returns, one week to six months’ post-IPO. The ambition with this thesis is to contribute with augmenting research to the limited and scarce literature related to the new cornerstone investor phenomenon. Observed results will be subject to statistical tests to increase validity and reliability, which then will enable the study to conclude on any new findings related to initial public offerings. Methodology: An event study has been conducted on Swedish IPOs from 2010-2017. To solve for concerns of cross-sectional dependence between data sets, this paper conducts parametric tests that enable the hypotheses to be statistically tested. Theoretical perspective: Due to the frequent usage in previous IPO and M&A literature, this thesis is based on signaling theory, information asymmetry and principal-agent theory. Information asymmetry suggests that there is a difference of valuable information held by management and the market. According to the signaling theory, announcements made by companies send signals to the market, to which investors then react. The principal-agent theory claims that there is a real demand for investment banking services as they are assumed to have more information about investor demand. Conclusion: Results observed confirm that underpricing exist on the Swedish market. As for positive aftermarket performance, it is observed on all time horizons if an allocation is given on the first day of trading (FDOT). If the investment occurs on FDOT+1, then positive abnormal returns are observed on a three to six-month time horizon. Looking at the effect of cornerstone investors, we find a positive correlation with underpricing and aftermarket performance on all time horizons given allocation on FDOT. If investing on FDOT+1, cornerstone investors show no correlation with underpricing or aftermarket performance but the percent of the company sold affect abnormal returns on a three-month time horizon. We wish to thank our tutor, Assistant Professor Maria Gårdängen for the valuable comments and guidelines throughout the thesis writing process. Also, we wish to thank Tony Elofsson and Mathias Jensen-Vinstrup from Carnegie Investment Bank in Stockholm for the valuable input on cornerstone transactions on the Swedish IPO market.
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