The Aftermarket Long-Run Performance of Sponsor- Backed and Non-Sponsored Initial Public Offerings in the Nordic Market: An Agency Perspective

Abstract

This study investigates the long-run performance of private equity backed, venture capital backed and non-financial sponsor backed initial public offerings (IPOs) using a sample of Nordic companies going public during the period 2004-2010. Furthermore, the study applies a corporate governance perspective and uses agency theory in an attempt to explain the drivers behind the differences in long-run abnormal returns across these three IPO groups. Within this framework, the effects on long-run abnormal returns of leverage, blockholder ownership, and managerial incentives are focused on. It is argued that these factors should have a positive relation with long-run abnormal returns following the IPO. The results of this study support the general pattern found in the IPO literature, with negative longrun abnormal returns across the three groups of firms in the three years following the public listing. Furthermore, the evidence in this study suggests that private equity backed IPOs have superior long-run abnormal returns compared to non-financial sponsor backed IPOs. Private equity backed IPOs are also larger, employ more leverage and are more profitable than their IPO counterparts. In contrast to the private equity backed IPO, our results provide no support for a superior performance by venture capital backed IPOs. They also provide no statistical support for a positive relation between long-run abnormal returns and leverage, blockholder ownership, and managerial incentives.