Push the leverage? A study on the effect of interest bearing debt with regard to IPO underpricing

Abstract: This study looks closer at the relationship between interest bearing debt and underpricing in initial public offerings ("IPOs") in Sweden, Norway and Denmark. The sample comprises 318 IPOs on each country's main list as well as Nasdaq First North between 2013 and 2022. We analyse the dataset through univariate and multivariate regression analyses to determine the relationship between leverage, defined as interest bearing debt over market value of equity, and IPO underpricing. The results imply a negative relationship between the two, with higher leverage being associated with less underpricing. Looking at the full sample the correlation is not statistically significant. When excluding outliers from the sample the negative correlation between leverage and underpricing is statistically significant at a 10 per cent significance level. Dividing the sample into Swedish and non-Swedish IPOs shows a statistically significant relation at a 10 per cent significance level for Norwegian and Danish IPOs but not for Swedish, leading to the conclusion that the results are uncertain but pointing towards a limited relationship between leverage and underpricing.