Private Equity IPOs: Long-term Performance and Drivers of Success
by Ignacio Hidalgo Perea
Abstract
In this paper, I explore the impact Private Equity ownership has on portfolio companies post-exit. This thesis aims to add to the discussion of whether the proliferation of Private Equity in the United States is a positive development for the country. Using a proprietary dataset that compiles thousands of IPOs between the years 2000 and 2016, I look at whether there are significant differences in performance between IPOs that come from Private Equity firms and those that go public on their own. Specifically, I use empirical analysis with robust regression to estimate the effects of Private Equity ownership on four key measures of financial success: MCAP growth, Revenue Growth, EBITDA Margin, and EV / EBITDA multiple. By looking at the changes in these measures of performance across three different time windows: 3 years post-IPO, 6 years post-IPO, and 9 years post-IPO, this paper determines how Private Equity ownership affects company performance post-exit and whether those effects persist over time.
Grace Kim, Faculty Advisor
JEL Codes: G23, G24
Investigating Underpricing in Venture-Backed IPOs Using Statistical Techniques
By Michael Tan
This paper concerns applying statistical methods to investigate under-pricing in VC-backed technology Initial Public Offerings (IPOs) since the great recession. In particular, firm, market, and IPO-specific variables were explored to determine if there were any significant relationships to under-pricing. The paper focused on the Bank Preference theory of under-pricing, where under-pricing is said to occur because investment banks running IPO processes are incentivized to under-price to decrease the risk that they will not be able to allocate all the issuance to price-sensitive public markets investors.
Advisors: Professor Daniel Xu, Professor Shawn Santo, Professor Grace Kim| JEL Codes: G3, G33, G24
The Impact of Post-IPO Private Equity Ownership on Long-Term Company Performance
By Maria Suhail and Cipriano Echavarría
This thesis contributes to existing knowledge of private equity (PE) by analyzing the
impact of PE ownership post-IPO upon the long-term performance of companies. It considers whether companies perform better when PE funds maintain their ownership stakes post-IPO and whether this performance is also impacted by the degree of ownership that is maintained after IPO. This study uses stock performance (measured by cumulative excess stock returns) as a proxy for long-run company performance. The paper constructs and analyzes a sample of 487 companies that underwent an IPO between 2004 and 2012 to determine the implications of the maintenance and level of PE ownership by analyzing the performance of these companies for six years post-IPO. Results suggest that PE ownership post-IPO positively impacts long-term stock performance of companies. Duration and degree of PE ownership post-IPO are also important determinants of long-run performance likely due to the positive signal that continued PE ownership sends to outside investors about the quality of the company, the information asymmetry that exists between public and private markets and that PE firms are experienced managers that add value to companies.
Advisors: Professor David Robinson, Professor Michelle Connolly | JEL Codes: G11, G14, G24
Leverage and Varying Metrics of Firm Performance
By Preston Jiateng Huang
This paper sets out to examine the effect of leverage on company performance. Drawing on the methodology of key prior research, this study finds that leverage has a consistent negative effect on firm growth; by contrast, no such negative impact was found on return on equity. Importantly, such patterns hold throughout the entire period under study (1970-2017), during which several disruptive economic events have occurred. These results highlight the importance of selecting appropriate company performance measures when studying the effect of debt load on a firm as well as the misalignment of incentives for policymakers and company management. Other implications are also discussed.
Advisor: Professor Kyle Jurado | JEL Codes: G24; G31; G32
How does being a Serial Creator affect Probability of Campaign Success on Kickstarter?
By Minn Khine
This paper seeks to address the issue of how being a serial creator impacts campaign success on Kickstarter. My hypothesis is that being a serial creator – someone who has created 2 or more projects on Kickstarter – has a positive effect on probability of campaign success but there are diminishing marginal returns to this effect. A regression analysis over a sample of over 187 thousand Kickstarter projects from its inception in 2008 until December 2014 yields the following findings, which supports my hypothesis. I found that being a serial creator does have a positive effect on campaign success but there is diminishing marginal returns to being a serial creator. Furthermore, number of updates, number of reward levels, having a video, number of backers, FB Shares, FB Friends, and Number of Projects Backed all have positive effects on campaign success. On the other hand, comments, funding goal, and duration have negative effects on campaign success. The effect of the Fed Fund Rate on campaign success is inconclusive. In terms of how project characteristics and creator characteristics affect first time creators and serial creators differently, I found that Updates, Video, FBShares, FBFriends, and Goal matter less as number of projects created increases, in other words, for serial creators who’ve gathered more project experience. On the other hand, Rewards, Backers, ProjectsBacked, Comments, and Duration matter more as number of projects created increases.
Advisor: Edward Tower, Grace Kim | JEL Codes: G21, G24, L26 | Tagged: Crowdfunding, Kickstarter, Serial creator
A Further Exploration of Reverse Takeovers as an Alternative to Initial Public Offerings
By Matt LoSardo
In theory a reverse takeover (RTO) should be a viable alternative to initial public offerings (IPO) for private companies looking to access the public capital markets. Since the IPO process can be very timely and include significant costs, both direct and indirect, we analyze reverse takeovers as an alternative method. Recent papers have posed some similar questions, evaluating underpricing and market-timing, which we look to confirm. However, our paper seeks to build on these analyses, with a particular focus on long-term returns for RTO stocks. Overall we find that reverse takeovers can be successfully used instead of IPOs and should be sustainable long-term investments.
Advisor: Edward Tower, Marjorie McElroy | JEL Codes: G12, G24, G32, G34 | Tagged: Finance, Initial Public Offering, Reverse Takeover
