Sponsor Credibility and Post-IPO Performances: Evidence from Private Equity & Venture Capital backed IPOs

Sammanfattning

As private equity (PE) and venture capital (VC) firms have become more active in taking companies public, questions around the credibility of these sponsors and their effect on post-IPO performance have grown in relevance. This study explores how different types of financial sponsors and their associated credibility influence stock returns following initial public offerings (IPOs). Using a sample of 797 IPOs recorded between 2009-01-01 and 2019-12-31 across seven European countries, we conduct multivariate OLS regressions with fixed effects to evaluate abnormal stock returns in relation to different sponsor types and their underlying credibility. Our findings show that PE-backed IPOs underperform relative to non-sponsored-backed IPOs in the short-run, whereas the long-run performance remains inconclusive. VC-backed IPOs also show signs of underperformance in both periods, although the results are statistically insignificant. No significant differences in performance is found when directly comparing PE- and VC-backed IPOs. However, when incorporating sponsor credibility, we find that higher credibility is associated with lower long-run abnormal returns among all sponsored-backed IPOs. The negative effect of credibility is less pronounced for PE sponsors in comparison to VC sponsors, but only in the short-term period.