How does the time in portfolio affect private equity portfolio company performance?

Abstract: The private equity market has developed significantly since its inception both in size and industry scope. Furthermore, after the collapse of the first private equity wave, due to the over-issuance of junk bonds, there seems to be a shift to more operational focus in the industry. With the aforementioned, it has been argued in previous studies, that the portfolio company holding period has increased on average. Studying a sample of 139 PE-backed firms exited through IPO between 1997 and 2010, this paper aims to study the effect of holding period on portfolio company performance, both in regards to operational performance and short-term stock performance (underpricing). However, due to the small data sample and large number of outliers, we are unable to draw clear conclusions. However, since we find some statistical significance, our study can contribute as an inspirational framework for further research.