DETERMINANTS OF IPO UNDERPRICING : Evidence from the United States, 2015–2020

Sammanfattning

This thesis examines what determines the degree of first-day returns on initial public offerings (IPOs) in the United States between 2015 and 2020. The study builds on theories of information asymmetry (Rock, 1986), venture-capital incentives (Gompers, 1996; Lee and Wahal, 2004) and investor sentiment (Ljungqvist, Nanda and Singh, 2006). Three hypotheses are tested on a sample of 766 US IPOs using ordinary least squares regression with heteroscedasticity-robust standard errors. The data come from Jay Ritter's IPO data page and IPOScoop.com. The results show that the average first-day return is 15.95 percent. The strongest predictor is venture- capital backing, which is associated with 14.4 percentage points higher first-day returns, supporting the grandstanding hypothesis over the certification hypothesis. Underwriter reputation is positively associated with underpricing, consistent with the reversal documented by Loughran and Ritter (2004). The hot-market year of 2020 adds about 15.2 percentage points of extra underpricing, consistent with investor sentiment theory. Firm age has a positive and significant effect, which contradicts theoretical predictions but may reflect selection effects in the modern IPO market. The model explains about 15 percent of the variation in first-day returns when measured by adjusted R-squared.