The level of ownership held by PE firms : The impact on underpricing at IPO and performance post-IPO

Sammanfattning: This study examines the specific ways in which private equity firms influence their portfolio companies to enhance their value, with a focus on the relationship between the level of retained ownership and post-IPO performance. Private Equity firms influence their portfolio companies in specific ways to enhance their value. Private Equity firms are typically limited partnerships, and to realize the value created during the life of the investment, the exit strategy is crucial. An initial public offering is stated as the preferable exit. However, private equity firms usually stay invested in their portfolio companies for up to several years after an initial public offering. Their retained ownership is crucial for underpricing at the IPO and performance post-IPO. This study aims to discover this relationship and to determine its effects. It will contribute to understanding how the portfolio companies' price changes on the first day of trading and their performance, in the long run, is affected by the stake held by the private equity firms. This research will try to clarify the current uncertainty about the effect of underpricing that prevails. It will also fill the existing gap in the academic literature about performance. It can also be potentially helpful for investors. Given knowledge about how retained ownership by PE firms affects underpricing at the IPO and performance post-IPO, this study can help investors to make better investment decisions. However, it should not be seen as investment advice but rather as a contribution to increasing the investor's understanding and knowledge. Publicly listed portfolio companies in the Nordic region constitute the sample for the analysis, and pooled OLS is the econometric method used in this study. We utilized a panel dataset for performance and obtained 2411 unique observations. The long-run performance has been measured as 36 months following the IPO. Our findings indicate a positive relationship between the level of ownership held by the PE firm and both underpricing and performance. These relationships are both statistically significant on the 1% level. Control variables were also included to capture other possible factors that might impact our dependent variables. The positive relationship between the level of ownership held by the PE firm and performance was in line with previous similar research and our expectations. However, the relationship between the PE firm's level of ownership and underpricing was the opposite of what we expected. Previous research has also presented contradictory results, making it difficult to predict the relationship. We hope our results have contributed to clarity regarding underpricing and broadening existing literature about performance for private equity-backed companies.