IPO Underpricing in NASDAQ First North Stockholm: Can Investors Beat the Market?

Abstract: Initial Public Offerings (IPOs) represent the first sale of the firms’ shares to the public. By setting lower offer prices, companies going public create opportunities for investors to earn abnormal returns, making IPOs an attractive investment strategy. This is a well-known and widely discussed in academic literature the IPO underpricing phenomenon. There are different motives for the IPO underpricing as well as different factors causing positive initial returns. The purpose of this thesis is to study the IPO underpricing phenomenon in the First North Stockholm market – an alternative Nasdaq’s market, specially designed for small and intensively growing firms. The thesis also aims to investigate whether the degree of IPO underpricing is influenced by the firm’s age, offer size, proceeds raised, leverage, Certified Adviser reputation or industry. The sample of 83 IPOs during the period of 2009-2015 is used. The multiple regression model together with univariate regressions and general IPO underpricing formulas are applied. The results show that Swedish IPOs in the First North market are on average underpriced, indicating that investors can actually beat the market and earn abnormal returns by investing in the First North market. The further analysis of IPO influencing factors reveals that most of the chosen factors are not significant for the given sample.