How do long-run performance and underpricing of IPOs differ from private equity-backed, venture capital-backed and non-private equity-backed companies?

Abstract

This paper investigates initial returns from the first-day, first-week, and firstmonth closing price to capture the underpricing of an initial public offering during two different market cycles, namely hot- and cold-issue markets. Furthermore, it investigates the long-run performance using buy-and-hold abnormal returns and cumulative abnormal returns. The data sample consists of 116 private equitybacked companies, 99 venture capital-backed companies, and 843 non-private equity-backed companies at New York Stock Exchange, Nasdaq Global Markets, and London Stock Exchange during 01.01.2000-31.12.2021. We find the first day underpricing for All Firms, PE, VC, and NPE at 16.9%, 16.4%, 16.2%, and 17.1%, respectively. We find significant evidence that larger firms outperform smaller firms in the long run in the terms of market capitalization at offer.