Unveiling Value Dynamics: A Comparative Analysis of Underpricing and Long-Term Performance Among PE-Backed, VC-Backed, and Non-Backed IPOs in the Swedish Market

Abstract: This research investigates initial underpricing and subsequent long-term aftermarket performance of private equity-backed, venture capital-backed and non-backed initial public offerings (IPOs) in the Swedish market. With a sample of 401 IPOs from January 2011 to December 2021 on the Nasdaq Stockholm and Nordic Growth Market, the study delves into the distinctive firm and IPO characteristics of the three categories. The findings indicate that PE-backed companies exhibit less underpricing than venture capital-backed and non-backed firms. PE-backed companies also demonstrate more robust long-term performance than the other two groups in 36-months BHAR, both on an equal and value-weighted basis. We also observe that PE-backed firms show significant and robust outperformance, looking at yearly cohorts compared to their counterparts. Finally, controlling for different operational and financial characteristics, we find that PE-backed firms have a significant long-term outperformance. The results shed light on the unique impact of VC and PE backing on IPO performance in the Swedish market, offering valuable insights for understanding underpricing and aftermarket dynamics.