IPO underpricing - ESG vs non ESG : A study of the relationship and effect of the ESG score on the level of underpricing in the European stock market

Sammanfattning: The market of IPOs experienced its strongest year in over 20 years where 422 IPOs were conducted in Europe. Due to the complex nature of the IPO process, the phenomenon of underpricing can occur. Underpricing can be explained as the positive percentage change of the offer price and the first trading day closing price. This phenomenon is associated with asymmetric information, when one party has more information than the other. Based on previous studies, the existence of ESG tends to reduce asymmetric information and possibly underpricing. ESG is an important factor that companies are taking into consideration when reviewing their business strategy. Besides that, the public sees ESG as a frontier for changing how we fight global problems. This study used ESG scores of companies in Europe that conducted an IPO between 2011-2021 to explain the relationship between ESG scores and underpricing. To thoroughly explain underpricing, this research included industry affiliation and the year the IPO was issued. This is a quantitative study that used a multiple linear regression model, which helps to see the effect between the dependent and independent variables. The findings showed that the ESG score did not affect the level of underpricing in the observed sample. Thus, the market does not take into consideration the ESG score as an important variable when pricing an IPO.