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The role of reputation in the underpricing of private equity backed initial public offerings

Hagedoorn, K. (2016) The role of reputation in the underpricing of private equity backed initial public offerings.

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Abstract:This paper explores the impact of private equity (PE) firm reputation on the underpricing of PE backed initial public offerings (IPOs). Using a sample of 470 IPOs issued between January 2011 and December 2015 in the United States, I find that PE backing as such no longer leads to lower initial returns. However, within the sub-sample of PE backed IPOs, issues backed by more reputable PE firms are characterized by less first-day and lock-up returns. I argue that these key findings imply the certification paradigm has shifted from PE backing as such to the adoption of PE firm reputation as an indication of quality. The results further provide partial support for the recently developed analyst lust hypothesis in that “top” underwriters boast larger initial returns and firms that carry out a seasoned equity offering are able to significantly raise prices.
Item Type:Essay (Bachelor)
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:85 business administration, organizational science
Programme:International Business Administration BSc (50952)
Link to this item:http://purl.utwente.nl/essays/69906
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