The effect of private equity funds on prices of companies with IPO in Brazil across 2004 to 2007

Abstract

The study evaluated the importance of Private Equity in the performance of medium-term (three years) of 89 companies between 2004 and 2007. The hypothesis tests for differences in means of cumulative abnormal returns showed a lower underpricing in companies with PE, especially in the sectors of transport and services, construction and industries in general. Additionally, the results of the multiple linear regression estimation showed a statistically significant (at 10% level) and positive relationship between the presence of PE funds and cumulative abnormal returns. Therefore, the companies that had PE funds as shareholders at the time of the IPO showed superior performance compared to other corporations. In this way, the study pointed out evidence that, by participating actively in the management of companies in their portfolios, PE funds reduce information asymmetry, certifying the business quality, solidity and good management of the companies in which they invest. In addition, the better medium-term performance in the companies with presence of PE funds can be a sign that these funds provide more effective management.