Swedish Private Equity – A Reliable Source for IPO Pricing?

Sammanfattning: Title: Swedish Private Equity - A Reliable Source for IPO Pricing? Seminar date: 03/05/2020 Course: FEKH89, Bachelor Degree Project in Financial Management Undergraduate Level, 15 credits Authors: Johan Brown, Patrik Nilsson, Filip Wallersköld Supervisor: Anamaria Cociorva Key words: Underpricing, Information Asymmetry, Private Equity, IPO, Sweden Purpose: To explore if and why Private Equity-backed companies experience different levels of underpricing compared to its counterpart between 2009 and 2018 Methodology: Quantitative Research Theoretical approach: Previous research suggests that firms going public experience, on average, abnormal first day returns. One of the theories explaining this phenomena argues that underpricing is a result of informational asymmetry between investors. However, certain procedures can be made in order to lower this informational gap. Hence, this study examines whether private equity lowers informational asymmetry by comparing a sample containing private equity-backed firms with a sample containing non-private equity-backed firms in Sweden during 2009-2018. Empirical approach: 277 IPOs in Sweden between 2009-2018 were studied. 83 of the companies studied were backed by private equity and the remaining 194 companies were not backed by private equity. The data was collected from Bloomberg. Conclusion: The study concludes that private equity backed firms experience less underpricing compared to non-private equity-backed firms due to the certification effect private equity provides. The variables debt-to-capital ratio, market capitalization and IPO Year proved significant results in explaining underpricing for non-private equity-backed firms. The decision for a private equity firm to sell off their shares, “exiting”, in connection to IPOs was the most prominent variable explaining underpricing for private equity-backed firms.