Initial Returns and Long-Run Performance of Private Equity-Backed Initial Public Offerings on the Amsterdam Stock Exchange

Abstract

This paper investigates the initial returns and long run performance of initial public offerings (IPOs) using a sample of 38 private equity-backed IPOs and 68 non-private equity-backed IPOs in the period 1985-1998 on the Amsterdam Stock Exchange. We find that private equity-backed firms outperform non-private equity-backed firms. In tests using several comparable benchmarks, private equity-backed firms show less underpricing than non-private equity-backed firms, however the difference is not significant. The evidence suggests that private equity-backed IPOs do not significantly underperform over a three-year period, while non-private equity-backed IPOs do. This paper also provides initial evidence on the sources of underpricing and underperformance. Evidence is presented that the reputation of the lead manager and the age of the firm have a negative effect on the level of underpricing and that the sales growth rate has a significant positive effect on the long-run performance of IPOs.