Key Drivers of Private Equity Firm
Certification at Initial Public Offering

Abstract

Private equity firms have been shown to add considerable value to investee companies. This article examines buy-side financial analyst perceptions of the determinants of private equity firm value added. The findings reveal significant relationships between the attractiveness of private equity firms’ IPOs and 1) their reputations, 2) their level of retained ownership, 3) the duration of their involvement prior to the IPO, and 4) the interaction between duration and intensity of involvement. The research reveals certification effects are best explained by theories of resource exchange and reduced informational asymmetries with reduced agency risk being a much lesser influence.

TOPICS: Private equity, performance measurement, equity portfolio management, statistical methods