This study analyses the role of private equity investors in solving asymmetric information problems and the relationship to underpricing, wealth loss for preexisting shareholders and the cost of going public. According to certification theory, companies backed by private equity investors are expected to have lowerunderpricing at the moment of an initial public offering, as they have fewer adverse selection problems, and there is less ex-ante uncertainty. However, the relationship between private equity backing and the cost of going public to issuers is less clear. We use a dataset of 66 private equity-backed and 94 non-privateequity-backed companies that went public on the Milan Stock Exchange between January 1998 and June 2008. Our findings provide evidence that out of the PEbacked firms, only those backed by private equity syndication show lower initialdayreturns and indirect issuance opportunity cost, while there is no difference in the certification role between bank-related and non bank-related private equity investors. We also find that the benefits persist for IPOs backed by private equity syndication, although to a lesser extent, even after adjusting for direct costs (gross spreads) the opportunity cost of issuance.

Underpricing, wealth loss for pre-existing shareholders and the cost of going public: the role of private equity backing in Italian IPOs / Ferretti, Riccardo; A., Meles. - In: VENTURE CAPITAL. - ISSN 1369-1066. - STAMPA. - 13:(2011), pp. 23-43. [10.1080/13691066.2010.543321]

Underpricing, wealth loss for pre-existing shareholders and the cost of going public: the role of private equity backing in Italian IPOs

FERRETTI, Riccardo;
2011

Abstract

This study analyses the role of private equity investors in solving asymmetric information problems and the relationship to underpricing, wealth loss for preexisting shareholders and the cost of going public. According to certification theory, companies backed by private equity investors are expected to have lowerunderpricing at the moment of an initial public offering, as they have fewer adverse selection problems, and there is less ex-ante uncertainty. However, the relationship between private equity backing and the cost of going public to issuers is less clear. We use a dataset of 66 private equity-backed and 94 non-privateequity-backed companies that went public on the Milan Stock Exchange between January 1998 and June 2008. Our findings provide evidence that out of the PEbacked firms, only those backed by private equity syndication show lower initialdayreturns and indirect issuance opportunity cost, while there is no difference in the certification role between bank-related and non bank-related private equity investors. We also find that the benefits persist for IPOs backed by private equity syndication, although to a lesser extent, even after adjusting for direct costs (gross spreads) the opportunity cost of issuance.
13
23
43
Underpricing, wealth loss for pre-existing shareholders and the cost of going public: the role of private equity backing in Italian IPOs / Ferretti, Riccardo; A., Meles. - In: VENTURE CAPITAL. - ISSN 1369-1066. - STAMPA. - 13:(2011), pp. 23-43. [10.1080/13691066.2010.543321]
Ferretti, Riccardo; A., Meles
File in questo prodotto:
File Dimensione Formato  
Ferretti-Meles2011_VentureCapital_285908_932654012_932652303.pdf

non disponibili

Descrizione: Articolo
Tipologia: Versione dell'editore (versione pubblicata)
Dimensione 221.11 kB
Formato Adobe PDF
221.11 kB Adobe PDF   Visualizza/Apri   Richiedi una copia
Pubblicazioni consigliate

Caricamento pubblicazioni consigliate

Licenza Creative Commons
I metadati presenti in IRIS UNIMORE sono rilasciati con licenza Creative Commons CC0 1.0 Universal, mentre i file delle pubblicazioni sono rilasciati con licenza Attribuzione 4.0 Internazionale (CC BY 4.0), salvo diversa indicazione.
In caso di violazione di copyright, contattare Supporto Iris

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11380/648009
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus 11
  • ???jsp.display-item.citation.isi??? ND
social impact