The purpose of this master thesis is to analyze the post-issue operational performance of private equity backed initial public offerings and the effect of changes in their governance structure on operational performance. We examine a sample of 49 private equity backed IPOs that went public between January 2004 and December 2008 on London Stock Exchange. Using this handpicked sample of private equity backed IPOs and an equivalent (benchmark) sample of match-pairs non-private equity backed IPOs we analyze the level and change in operational performance over a five year period and test the effects on operational performance of changes in the private equity backed IPOs debt, ownership and the private equity funds ownership period. The main conclusions of the analysis are: (1) we find no significant differences in post-issue operating performance between private equity backed and non-private equity backed IPOs, neither in the level or change in performance. Although we find no significant differences in performance between the two samples, we do find a significant positive change in return on assets for the private equity backed IPOs one year prior to and one year after the IPO. Additionally we find that this change in return on assets is related to private equity backed IPOs which are backed by prestigious funds and by funds which do not exit at the IPO. Furthermore, (2) we find that part of the change in private equity backed IPOs operational performance is due to changes in the governance structure. We demonstrate, analog with Jensen & Meckling (1976), that the changes in executive ownership is positively correlated with operational performance and that this change in the governance structure increases the agency costs of the company. Further and more surprisingly, we find that changes in debt have a negative effect on cash flow return on assets from one year before the IPO to three years after. Finally, we find no significant relation between operational performance and private equity ownership and the holding period by the fund prior to the IPO.
|Educations||MSc in Finance and Accounting, (Graduate Programme) Final Thesis|
|Number of pages||135|