Private Equity Sponsorship and Long-run Economic Value Creation in Portfolio Companies

Melad Safi

Student thesis: Master thesis

Abstract

This master thesis investigates the long-run economic value contribution of private equity sponsorship in continental Europe, through a comparative examination of the long-run abnormal performance of 1,054 initial public offerings from 2003 to 2015. The investigation is executed in multiple perspectives delivering granularity to the research methodology. In a novel addition, the influence of institutional environment on economic value contribution of private equity sponsorship is investigated. Initially, an overview of the most prevalent theoretical frameworks is presented on private equity firms, initial public offerings, and the institutional paradigm of continental Europe. The lion’s share of theoretical frameworks predicts private equity sponsorship is associated with superior economic value contribution relative to other sponsor identities. It is noteworthy that these predictions have been unsubstantiated by research in academia. However, a vast majority of such research has focused on the Anglo-Saxon world. Thus, the intention of this thesis is to explore the interaction of the industry’s modus operandi and the institutional paradigm of continental Europe, which emphasises sustainable and long-term value-creation. This thesis finds a sizeable long-run abnormal overperformance of private equity sponsored initial public offerings, independent of size and less subject to irrational investor behaviour. In addition, an indication of a gradual evolvement in the industry scope of the private equity industry towards technology-enabled industries is detected. Furthermore, evidence is discovered for the influence of the institutional environment on the modus operandi and long-run economic value creation emphasis of private equity sponsors. In sum, the discoveries of this thesis are in alignment with the prediction of prevalent theoretical frameworks and provide novel and interesting insights into the long-run economic value contribution of private equity sponsorship, while setting the scene for future research opportunities.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2019
Number of pages91
SupervisorsKasper Meisner Nielsen