Standing Selfish and Grand? - A study of private equity impact on IPO valuation

Abstract: The conflicting effects of private equity certification and grandstanding in relation to IPO underpricing has been disputed since the 1990's. Using a sample of 334 IPOs on six Swedish trading platforms, applying a Tobin's Q value relative as an alternative to first-day returns, this thesis finds differences in valuations between private equity and non-private equity backed IPOs. The results suggest that companies controlled by a private equity owner go to market at a lower value relative. Similarly, for private equity backed IPOs across trading platforms with differing levels of regulation, it is found that valuations differ and the results indicate lower valuations for these financial sponsor backed companies listing on more well-regulated markets compared to their counterparts listing on less well-regulated markets. The results indicate consistency with grandstanding, the notion that general partners are inclined to take portfolio companies public earlier in order to raise follow-on funds, generating real wealth losses on the behalf of limited partners.