Mispricing of Private Equity-Backed Initial Public Offerings

Abstract

This thesis investigates whether private equity-backed initial public offerings (IPOs) are systematically less underpriced than non-private equity-backed IPOs, whether the lower underpricing can be accounted for by lower post-IPO dispersion in returns and whether the lower dispersion in returns may be related to the quality of the leading private equity firm. By researching these questions we have aimed at finding an explanation for why investors can be indifferent between investing in private equity-backed IPOs and non-private equity backed IPOs. We found that private equity-backed IPOs on average are less underpriced than non-private equity-backed IPOs and the dispersion in the returns of buyout-backed IPOs is smaller than for non-private equity-backed IPOs. Further, we find that the average return of IPOs, where a high quality private equity firm is the leading private equity shareholder, was more underpriced than the average non-private equity-backed IPO