The Effect of Leverage and Venture Debt on Underpricing and Short-Term Performance: Evidence From European IPOs

Abstract

This thesis investigates the effect of leverage and venture debt on underpricing and short-term performance of 1,522 European initial public offerings (IPOs) between 2005 and 2022. Our sample includes 194 IPOs financed by venture capital, 191 by private equity, and 1,137 non-sponsored IPOs. We find that a higher debt-toasset ratio is associated with lower underpricing but does not significantly impact short-term performance. Moreover, venture debt does not affect underpricing but leads to higher short-term underperformance. Europe shows an average underpricing of 10.13%, with venture capital being the least underpriced by 5.52%. IPOs outperform the market for up to 6 months but underperform within 12 months. Private equity outperforms the market in all periods.