Initial Public Offerings and Venture Capitalist Certification: Evidence from the Finnish Stock Market

Abstract

This study deals with a particular worldwide evidenced phenomenon which is related to the initial public offering of a company. This phenomenon is the underpricing of the shares offered during an IPO. Indeed, numerous studies have evidenced the fact that when companies go public their shares tend to experience a substantial price jump on the first trading day. This thesis goes further into the underpricing phenomenon and investigates whether companies which are venture-backed before going public experience less underpricing during the first trading day after the initial public offering than non venture-backed companies. Furthermore, this thesis studies if the reputation of the underwriter of an IPO firm plays a role in the initial underpricing. In fact, it has been documented by several studies that the more prestigious the underwriter of an issue is the lower is the experienced underpricing. In order to test the hypotheses advanced by this thesis, companies which went public on the Helsinki Stock Exchange are analyzed. The statistical significance of the initial underpricing is tested with the Student’s t-test as well as with the Mann-Whitney U test. The empirical results of the regressions bring some evidence in favour of the two hypotheses advanced by this paper. However, the results of the multiple regression analysis are not clear-cut. It is probably biased with multicollinearity.