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Long-run underperformance following private equity placements: The role of growth opportunities
Journal article   Peer reviewed

Long-run underperformance following private equity placements: The role of growth opportunities

De-Wai Chou, Michael Gombola and Feng-Ying Liu
The Quarterly review of economics and finance, v 49(3), pp 1113-1128
2009
DOI: https://doi.org/10.1016/j.qref.2008.11.003

Abstract

Growth opportunities Long-run performance Private placements
Our results show that the post-offering performance of private equity issuers is related to growth opportunities. We find significant long-run underperformance in stock returns following private placements only for firms with high Tobin's q. High-q firms experience not only poor stock price performance but also poor operating performance. Low-q firms, in contrast, do not display significant stock price or operating underperformance. We further examine three potential explanations for this relation: over-investment in assets by managers, investor skewness preference, and over-optimism about earnings prospects. Our results are consistent with the view that investors are overly optimistic about the prospects of high growth firms.

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15 citations in Web of Science
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Economics
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