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What Mechanisms drive the first-day Return of IPOs?

Lindström, Anton LU (2019) NEKP01 20191
Department of Economics
Abstract
The mechanisms behind the positive first day market-adjusted return of IPOs on the American and Canadian markets is examined from 2000 through 2018. A set of financial variables is tested as well as the industry-specific effect and the effect of being venture capital backed. Interaction terms between industry and venture capital backing are created to identify the effect of being venture capital in each industry. EBIT, gross proceeds and the profitability multiple EBIT over total assets had significant explanatory power. In contrast, total assets, the ratio gross proceeds over total assets and profitability multiple earnings over total shares outstanding were all insignificant. Risky industries had a significantly higher first day market... (More)
The mechanisms behind the positive first day market-adjusted return of IPOs on the American and Canadian markets is examined from 2000 through 2018. A set of financial variables is tested as well as the industry-specific effect and the effect of being venture capital backed. Interaction terms between industry and venture capital backing are created to identify the effect of being venture capital in each industry. EBIT, gross proceeds and the profitability multiple EBIT over total assets had significant explanatory power. In contrast, total assets, the ratio gross proceeds over total assets and profitability multiple earnings over total shares outstanding were all insignificant. Risky industries had a significantly higher first day market adjusted return (the financial industry was used as the reference). Considering the marginal effect of being venture capital-backed with respect to industry, with the inclusion of interactions terms, decreased the first day market adjusted return. In particular, in high-risk industries. The average marginal effect of VC-backing across all industries increased underpricing significantly. The increased underpricing is likely due to that VC-backing is an endogenous decision, making VC-backing more prevalent in high-risk industries. Adding interaction terms and having the financial industry as reference decreased the underpricing more in risky industries comparing to non-risky industries. (Less)
Please use this url to cite or link to this publication:
author
Lindström, Anton LU
supervisor
organization
course
NEKP01 20191
year
type
H2 - Master's Degree (Two Years)
subject
keywords
IPOs, Asymmetric information, Underpricing, Industry and VC-backing.
language
English
id
8981276
date added to LUP
2019-08-08 10:24:45
date last changed
2019-08-08 10:24:45
@misc{8981276,
  abstract     = {{The mechanisms behind the positive first day market-adjusted return of IPOs on the American and Canadian markets is examined from 2000 through 2018. A set of financial variables is tested as well as the industry-specific effect and the effect of being venture capital backed. Interaction terms between industry and venture capital backing are created to identify the effect of being venture capital in each industry. EBIT, gross proceeds and the profitability multiple EBIT over total assets had significant explanatory power. In contrast, total assets, the ratio gross proceeds over total assets and profitability multiple earnings over total shares outstanding were all insignificant. Risky industries had a significantly higher first day market adjusted return (the financial industry was used as the reference). Considering the marginal effect of being venture capital-backed with respect to industry, with the inclusion of interactions terms, decreased the first day market adjusted return. In particular, in high-risk industries. The average marginal effect of VC-backing across all industries increased underpricing significantly. The increased underpricing is likely due to that VC-backing is an endogenous decision, making VC-backing more prevalent in high-risk industries. Adding interaction terms and having the financial industry as reference decreased the underpricing more in risky industries comparing to non-risky industries.}},
  author       = {{Lindström, Anton}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{What Mechanisms drive the first-day Return of IPOs?}},
  year         = {{2019}},
}