The IPO Process and its Impact on Underpricing: A Case Study of Motion Display Scandinavia AB

Sammanfattning: This paper investigates the IPO process of the Swedish company Motion Display Scandinavia AB. It evaluates existing research on the IPO process and IPO performance, and views that research in light of the observed case. We observe that (i) the issuer does not evaluate IPO performance in absolute terms, (ii) the issuer distinguishes between direct and indirect IPO costs, (iii) the issuer has a willingness to reward IPO investors, and (iv) the issuer accepts that positive media attention comes on the premises of the media. These observations help explain why issuers don't mind leaving money on the table, partly because the issuer is not sufficiently concerned with underpricing (observation i and ii), and partly because the issuer sees underpricing as a deliberate measure to ensure a certain outcome (observation iii and iv). Furthermore, we observe that the issue price was set prior to the determination of lock-up restrictions. We discuss the potential effect this might have on IPO performance. On that basis, we elaborate on what we refer to as the "issue supply and demand aspect of fixed-price underpricing". We conclude that the absence of accurate information on lock-up restrictions at the time of the determination of the issue price leads to higher underpricing. To the best of our knowledge, this notion is new to research. Therefore, we suggest that it should be subject for further research.