Evaluating the Impact of Pre-IPO Financial Metrics on IPO Offer Pricing and Post-IPO Performance in Scandinavian Markets

Abstract

This thesis critically examines the performance of initial public offerings (IPOs) in the Nordic region, specifically Denmark, Sweden, Norway, and Finland, over the period from 2010 to 2021. The research is structured into two primary segments: the influence of pre-IPO financial performance indicators on IPO offer prices and the post-IPO performance analyzed through the Fama-French five-factor model. The pre-IPO analysis explores how financial ratios such as Price-to-Earnings (PE), Price-to-Book (PB), Return on Equity (ROE), Net Income to Assets (NIA), and market sentiment indicators influence the IPO offer price. The findings indicate that the PE ratio and NIA exhibit a significant positive relationship with IPO offer prices, suggesting that firms with higher earnings and asset efficiency command higher initial IPO offer prices. In contrast, the PB ratio showed a weak and statistically insignificant positive relationship, and market sentiment surprisingly displayed a significant negative impact on IPO offer prices. These insights diverge from some existing literature, indicating the necessity for further investigation into market sentiment dynamics. The post-IPO analysis employs the Fama-French five-factor model to elucidate the performance of IPOs in the Scandinavian market. The results affirm the model's applicability, with the market risk premium (MRP) and the size factor (SMB) positively influencing excess returns, while the value factor (HML), profitability (RMW), and investment (CMA) factors negatively affect these returns. This analysis is further segmented by country, year, and sector to uncover specific performance trends and variations. Swedish IPOs consistently outperformed those in Denmark, with Denmark showing significantly lower post-IPO excess returns. Comparisons between Sweden and Finland and Sweden and Norway did not yield statistically significant differences in IPO performance from 2010 to 2021. Analysis of annual data revealed that IPOs in earlier years generally yielded higher returns compared to those in 2021, with significant results except for 2012, 2013, 2018, and 2020. Sector-specific analysis indicated that most traditional sectors underperformed relative to a composite 'other' sector, although not all sectors showed statistically significant differences, with the Health and Consumer Durable sectors being statistically insignificant.

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A master thesis from Aalborg University

Evaluating the Impact of Pre-IPO Financial Metrics on IPO Offer Pricing and Post-IPO Performance in Scandinavian Markets