Ownership Concentration and IPO Underpricing on the Stockholm Stock Exchange

Abstract: The purpose of this paper is to examine if ownership concentration prior to an initial public offering (IPO) can explain first-day returns. This relationship is explored by studying new issues offered to the public in Sweden between January 1, 2000 and December 31, 2017. Using a data sample consisting of 96 firms listed on the Stockholm Stock Exchange, we compute first-day returns and find an average underpricing level of 9.1% for the sample period. To test if ownership concentration prior to the IPO can explain underpricing we use three different independent ownership concentration variables. The ownership concentration variables are based on the percentage of voting rights held by the single largest shareholder or the three largest shareholders prior to the IPO. We test if firms with a majority shareholder prior to the IPO experience different underpricing levels than firms without a pre-IPO majority shareholder. We find no statistical evidence that the average underpricing is different between the two groups of firms. We also test how a higher level of ownership concentration affects underpricing, and find a negative relationship between pre-IPO ownership concentration and underpricing for all three ownership concentration variables. However, the results are not statistically significant.