Underpricing and Long-Term Stock Performance of Private Equity-Backed IPOs: Empirical Evidence From Nordic Stock Exchanges

Abstract

This thesis examines the short-term and long-term stock performance of private equity-backed (PE-backed) and non-backed initial public offerings (IPOs) by analyzing a sample of 1,028 IPOs listed on Nordic stock exchanges between 1/1/2000 and 31/12/2024. The abnormal return (AR) is measured against four benchmarks, and key company, market, and corporate governance variables are examined to help explain performance differences. This thesis provides evidence that both PE-backed and non-backed IPOs are significantly underpriced at IPO. While PE-backed IPOs are less underpriced than non-backed IPOs, the difference is statistically insignificant. Leverage is negatively associated with the first-day AR, and an inverted U-shaped relationship exists between managerial ownership and the first-day AR. 3 years after the public listing, PE-backed IPOs significantly outperform both non-backed IPOs and relevant benchmarks. Long-term AR is negatively associated with leverage, IPO issuance activity, and the concentration of PE-affiliated board members. However, leverage is positively associated with long-term performance for PE-backed IPOs. The findings provide valuable implications for investors, PE funds, and academics, extending the scarce non-US evidence on the topic.