Cooperation between the investment bank and the issuing firm

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Empirical findings

This section will introduce the reader with the data collected from our interview as well as from other sources.
Accordingly, data that investigates the two phenomena’s will be summarized and explained.

Sample

The total population from which we selected our sample is the total amount of companies that were introduced on the Swedish stock market, OMX, in 1998-2007. Later, in order to get as valid and truthfully data as possible we chose to investigate companies that are still listed since we want to be able to compare historical data as well as the development. Dur-ing the 10 years of focus, the study will be performed on 58 companies (Appendix 9.2 )

Distribution of sample

Our sample constitutes of all the companies that performed an IPO during 1998-2007 in Sweden, and that are still listed today. It turned out to be a total amount of 224 companies and the ones that are still listed are only 58 companies, which constitutes 24,6% out of the total. For example, during the first four years there were a lot of IPO’s, but there were also a lot of delisting. The two following years, 02-03, there were less IPO’s and the majority of the companies from 2002 are de-listed and all of the 6 companies from 2003 are also de-listed. Then something happens, in 2004 there is a turn because half of the companies are still left on the stock exchange, and 2005-2007 all of the companies are still listed. Below there is a pie chart of the industry-distribution of our sample. It is clear that the IT industry and the Industrials-industry are the two major industries within IPO’s.
Having seen the sample-distribution in total, another interesting aspect is the distribution for the shares that were underpriced themselves. Appendix 9.3 includes only the part of the sample with companies that had a offer price lower than the closing price the first day of trade. As seen, the adjusted sample looks almost the same as the whole sample, there are some difference within the finance industry where there were a few less underpriced. Again the IT- and industry-industry are the major players, but also the healthcare industry is tak-ing a bigger part compares to the whole sample.

Index

The table below comes from Affärsvärlden.se and shows the development of general index and different industry indexes, and their development at the Swedish exchange during 1999-2008.
Some sectors have performed above the OMX General Index. One of the better perform-ing sectors is the consumer staples. The IT sector had a peak during 2000 but has de-creased and is now the worst performing sector. All sectors, with some minor exceptions, follow the slope of the OMX General Index.
One can see that between the years 1999-2000 there was a steady increase of the general index. The following years experienced both increases and decreases, however between 2000-2004 there was a clear decrease followed by a few years of increase. From 2007, to present day, there has been a significant decrease due to large uncertainties.

Underpricing

Underpricing per industry

Out of the 58 companies we have investigated there were 28 companies who had set a low-er offer price than the closing price first day of trade, and were therefore underpriced. Fur-ther, there are also differences in underpricing between industries. During year 1998-2007, the total underpricing was 23%, compared to the finance industry alone, that was only 2% underpriced. Equally distinct is the IT industry that was underpriced 59%.

Average underpricing per industry (%)

When looking at the different industries, Eniro underpriced the most within the consumer discretionary; almost 70%, while Rezidor Hotel group did only underprice 1%. At the IT section Cybercom underpriced with almost 200%, and Axis only with 1%. Within the In-dustrials industry section the companies did not under price that much, Proffice under-priced by 32% and underpriced the most, the rest of the companies were in between 3-13%. In the finance section only Eastern Capital explorer underpriced and only by 2%. Within health care, Sectra had a under price of 20% which was the highest in that industry. Within the Telecom and Consumer staples, only one company in each industry, Telia and Oriflame were underpriced. Telia were under priced by 4% and Oriflame by 10%.
When it comes to the different years, one can tell that there where only Prevas who was underpriced in 1998 compared to 7 companies introduced. In 1999, 8 stocks were under-priced, and 14 were introduced on the stock market. In 2000, 6 companies underpriced and 7 companies were introduced. During 2001, 4 companies were introduced and one of them where underpriced. 3 companies were introduced in 2002 and one of them where under-priced. 2003 was a bad year for the stock market and none of the companies introduced are still on the stock exchange today. In 2004 one out of four firms were underpriced and dur-ing 2005 four companies were introduced and three of them were underpriced the first day of trade. In 2006, 4 out of 8 companies were underpriced and in 2007, 3 out of 6 under-priced. In appendix 9.7 one can see the amount of stocks introduced and how many of those that where underpriced. Below one can see those companies that were underpriced per year.

Money left on the table

In our sample we have calculated 23 companies that left money on the table. Micronic La-ser systems AB left the highest amount in our sample, their stock were underpriced with almost 100%, it was offered at 105 and closed at 205 the first day of trade. Micronic left almost 2,5 billion SEK. Telia’s stock also underpriced but only with a few percent (4%) but due to the huge amount of stocks sold out the money on the table was close to 560 million SEK. There except from telia 6 other companies that left over 100 million SEK, ORC software left 149 MSEK, Cybercom almost 325 MSEK, Lindab 108 MSEK, Intrum Justitia left 122 MSEK, Indutrade almost 200 MSEK and Proffice 410MSEK. The rest of the companies are in an interval of 4 MSEK (Orexo) – 88 MSEK (BioVitrum). As can be seen in appendix 9.5 there is a list of the offer price and the price interval , the amount of stock the company gave out in comparison to the money left on the table.

Performance in general

Performance can be measured in many ways. An indicator of how the stock market per-forms is the general index which shows the average performance of the whole stock mar-ket, there are also industry indexes showing a weighted average of the different industries. These give a more unbiased and trustworthy index for a specific group.
The IPO’s that are included in our sample are those that still exist, and operate under the same name today. We have excluded those that have been de-listed as well as those that have merged with other companies. The companies within our samples were listed during 1998 till 2008. The fact that many of those companies, issued in the late 90s, does not op-erate today, indicates how hard it is for IPOs to survive.

1 Introduction 
1.1 Background
1.2 Problem discussion
1.3 Research questions
1.4 Purpose
1.5 Delimitations
1.6 Methodology
2 Theoretical framework
2.1 The process
2.2 Reasons for underpricing
2.3 Money left on the table
2.4 Best effort vs. firm commitment
2.5 Explanations for underperformance
2.6 Ownership structure .
2.7 Jenkinson’s trading rule
2.8 Previous studies
3 Method 
3.1 Qualitative interview with M. Rylander
3.2 Data analysis
3.3 Reliability and validity
4 Empirical findings
4.1 Sample
4.2 Distribution of sample
4.3 Index
4.4 Underpricing
4.5 Money left on the table
4.6 Performance in general
4.7 Performance per industry
4.8 Hot issue market phenomena
4.9 Ownership structure
4.10 Presentation of qualitative interview
5 Analysis
5.1 The process
5.2 Reasons for underpricing
5.3 General underpricing
5.4 Underpricing per year
5.5 Best effort vs. Firm commitment
5.6 Reasons for underperformance
5.7 General underperformance
5.8 Ownership structure
5.9 Jenkinson’s trading rule
5.10 Cooperation between the investment bank and the issuing firm
5.11 Analysis evaluation and critique
6 Conclusion 
7 Further studies 
8 References 
9 Appendix 
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Initial Public Offerings An investigation of IPO’s on the Swedish market