We examine underpricing of private equity (PE) backed initial public offerings (IPOs) listed on a major US stock exchange between January 2000 and December 2009. The authors identify 265 private equity backed IPOs and compare these with concurrently listed venture capital (VC) backed and non-sponsored (non-PE/non-VC backed) IPOs. Private equity backed IPO firms tend to be larger, more profitable and are underwritten by investment banks that have proportionally greater share of the underwriting market. The results indicate that, on average, private equity backed IPOs experience a significantly lower level of underpricing than venture capital backed or non-sponsored IPOs. The authors posit that the presence of a private equity firm as a client divesting through the IPO induces the investment bank to reduce expected underpricing, because private equity firms tend to be continuing and lucrative clients of investment banks. Thus, the results extend the evidence on the relative power of participants in IPO deals.
|Pages (from-to)||47 - 59|
|Number of pages||13|
|Journal||Investment Management and Financial Innovations|
|Publication status||Published - 2012|