Private equity : what happens next?

• Autor(a) principal: Botelho, Miguel António de Machete Gago da Câmara do
• Data de Publicação: 2019
• Tipo de documento: Dissertação
• Idioma: eng
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: http://hdl.handle.net/10400.14/29275
• topic: Private equity; Long-term performance; Initial public offerings; Desempenho a longo-prazo; Ofertas Públicas de Aquisição; Domínio/Área Científica::Ciências Sociais::Economia e Gestão

Previous academic research has focused on Private Equity funds’ superior performance, when compared to respective benchmarks. However, there is still a question to be answered: what happens after these funds’ targets leave Private Equity’s protective wing? From a sample of 426 observations, from which 180 had previously been funded by Private Equity, in both US stock exchanges, we built a first-differences regression model to investigate the subject. We found evidence showing that Private Equity’s superiority during funds’ lifetime is paid away in the years after. Our sample revealed a negative effect detected on long-term performance of firms whose Initial Public Offerings were Private Equity-backed. The data collected suggests a possible variation of the negative impact, depending on the industrial sector. There is also evidence that smaller firms are more affected than larger firms, by the identified Private Equity effect. The percentage of outstanding shares issued at IPO is positively correlated with the negative impact under scrutiny, when less than half of the total equity had been issued. Nevertheless, one must be cautious when interpreting the results, as our performance measures are scaled by the market capitalization, which is subject to investors’ overvaluation.