The Long-run Performance of Sponsor-backed and Non-sponsor Backed IPOs: An Empirical Analysis of the U.S. American Stock Market

Benjamin Berger & Nico Meyer

Student thesis: Master thesis

Abstract

In our thesis, we examine the stock performance of newly listed firms on the AMEX, NYSE and Nasdaq for the time horizon between 2000 and 2013. Our research lays emphasis on the performance of sponsor-backed and non-sponsor backed companies. We find evidence that IPOs generally underperform in the long-run, while sponsor-backed companies appear to perform at a superior level compared to non-sponsor backed event firms. While the negative abnormal return of non-sponsor endorsed companies does not appear to be statistically different from zero, we find some evidence that sponsor-backed IPOs indeed exhibit statistically significant negative stock performance. For the subgroups of sponsor types, we find statistically significant positive abnormal returns for Private Equity-supported firms. The evidence indicates that this cohort substantially outperforms other groups, including non-sponsored companies. Potential drivers are superior profitability in terms of EBITDA margins and higher leverage. Besides, we suggest that the PE-backed firms’ larger size in terms of market capitalization may carry increased media attention and, consequently, larger investor interest. When looking at different exit types for sponsors in the event of the IPO, No Exits consistently outperform the other exit strategies Partial Exit and Complete Exit. Therefore, the analysis reveals that the sponsors’ decision not to sell any shares in the IPO seems to serve as a strong signal that companies are of higher quality. In the comparison of IPO performance over time, we find poor significant performance for the sponsor- and non-sponsor backed companies in the IPO year 2000, potentially driven by the aftermath of the Dotcom Bubble and the decrease in the overall equity market valuations. Notably, in this period, we find that non-sponsored companies seem to be more robust to the development in such crises in terms of activity and abnormal returns.

EducationsMSc in Finance and Investments, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2020
Number of pages213