The long-term performance of private equity backed companies in Chinese market

Abstract

Academic research related to private equity has been focused on the study of initial underpricing and short-run performance. The first aim of this study is to analyze all the Chinese Initial Public Offering (IPOs) from 2010-2014, with the sample containing of 916 firms, to provide additional evidence on the long-run performance of IPOs invested by private equity. This research fulfills the gap that whether the long-term performance of IPOs enterprises invested by private equity exceed the IPOs without private equity on two aspects of market and operating performance. The study shows that for both market and operating performance for the Chinese IPOs depends on the time period and the methodology used. Firstly, for the market performance by using CAR (cumulative abnormal return) method, the result shows that mid-term (3 years) performance of private equity backed IPOs is lower than non-PE (private equity) backed. While for the long-term (5 years) performance of PE-backed IPOs is better than non-PE backed IPOs. On contrary, the BHARs (buy-and-hold returns) of PE backed IPOs is slightly lower than non-PE backed IPOs. Therefore, for the operating performance, only by Tobin’s Q method, the PE-backed IPOs is outstanding the non-PE backed IPOs.

The second objective of this research is to study the influence of IPO prospectus information for the long-term performance of the IPO enterprises. The results show that the characteristics of the IPO: size of the issue, innovation patents, company industry area, hot market index-have a stable significant influence on the stock performance of companies for five years after IPO. On the other aspect: operating performance, parameters of research and development expense, growth in sales, company’s asset size and the hot market index are directly related to the performance after IPO. These results confirm some hypothesis for the explanation of the long-term performance of IPOs in Chinese capital market.