Underpricing and long-term performance of Private Equity backed IPOs

Abstract

This paper investigates underpricing and long-term performance of Private Equity backed (PE-backed) initial public offerings (IPOs) in the US. We investigate underpricing by using a sample of 443 PE-backed IPOs and 1550 non-sponsored IPOs listed on the New York Stock Exchange (NYSE) and Nasdaq between 2002-2021. The long-term performance analysis consists of 372 PE-backed IPOs and 965 non-sponsored IPOs listed on NYSE and Nasdaq between 2002-2016. We find that PE-backed IPOs, on average, outperform other non-sponsored IPOs and experience less underpricing. Our results reveal that PE-backed IPOs on average, are larger (in terms of market capitalization) and that the level of underpricing in these issues are less affected by the timing of the IPO compared to that of non-sponsored IPOs. In the three years following the listing the PE-backed IPOs significantly outperforms both other non-sponsored entities and the market (S&P500).