Does Sponsor Holding Period Affect post-IPO Performance? Evidence from Nordic Private Equity Backed IPOs

Abstract: This study examines the impact of private equity sponsors' holding period on aftermarket performance of Nordic Initial Public Offerings ("IPOs"). A manually obtained sample of 121 sponsor backed IPOs executed on the main Nordic stock exchanges between 2000 and 2016 is used to analyze one- and three year buy-and-hold excess returns depending on pre-IPO sponsor holding period. The sample IPOs are divided into three groups based on sponsor holding period length prior to the IPO, and are split as follows; firms held for 0-3 years (quickflips), firms held for 3-7 years (average holdings), and firms held for seven years or more (longholds). The paper does not provide evidence of holding period impact on sponsor backed IPOs' trailing market performance. The model is extended by additional independent variables; firm size and sponsor type. The former can not be evidenced. Significantly proven, though, is the impact of sponsor type. There is a positive impact of a firm being buyout ("BO") backed rather than venture capital ("VC") backed prior to the IPO on its excess return level. Despite not providing significant results on the main hypothesized questioning of an inverse U-shaped relationship between holding period and post-IPO performance, the paper contributes with findings on how sponsor specific traits play a significant role on private equity backed IPOs' aftermarket behavior.