Banking Relationships and first-day IPO Performance - Evidence from ex-ante pricing of Swedish firms

Sammanfattning: The purpose of this thesis is to investigate how pre-Initial Public Offering (IPO) banking relationships affect the level of underpricing for Swedish firms. By studying a sample of 273 IPOs between 2014 and 2018, no support for a signaling effect that reduces information uncertainty for investors can be concluded since firms with a pre-IPO lending relationship do not experience a lower level of underpricing. By further investigating the type of bank the relationship refers to, the sample is narrowed to 122 IPOs, and empirical evidence is found that a previous relationship with a bank that could be employed as the firm's underwriter is associated with a significantly higher level of underpricing. Finally, we find no evidence that employing the existing relationship bank as the underwriter is related to a conflict of interest. The results thus indicate that having a relationship bank with a business scope that goes beyond lending is associated with a significant cost for the issuing firm in terms of money left on the table within the studied sample, regardless of whether the relationship bank underwrites the issue or not.