Private Equity Investment: An Empirical Study Of Ipo Impact To The Enterprise

Private equity is one of the most important ways of finance for firms that are not ready to go public. Private equity fund not only provide capital that companies needed to expand their business, but also add value to the firm by improve their management efficiency. Initial public offering (IPO) is the most important way for private equity fund to withdraw from the investment and realize their profit. Private equity funds have a significant impact on the IPO price of the companies that they invested in.Domestic companies that went public between2004and2011in Chinese capital market are used as sample in the paper. I try to find out the impacts of private equity financing has on the IPO price of those firms. The focus of this paper is the difference of the impacts between PE-backed companies and non-PE-backed companies, domestic PE-backed companies and foreign PE-backed companies. principal-underwriter-PE-backed companies and non-principal-underwriter-PE-backed companies, high reputation PE-backed companies and low reputation PE-backed companies.In this paper, I show that the IPO PE ratio and PB ratio of PE-backed companies are significantly higher than those non PE-backed companies from2004to2011. Do the same research for each year between2006to2009,I found that the results of year2007,2009and2010are the same with the period of2004to2011as a whole. But for year2006,2008and2011, the differences of the PE and PB ratios between those two groups of companies are not statistically different. Also that the differences of PE ratios between domestic PE-backed companies and foreign PE-backed companies, principal-underwriter-PE-backed companies and non-principal-underwriter-PE-backed companies, high reputation PE-backed companies and low reputation PE-backed companies are not statistically significant. PB ratio of high reputation PE-backed companies is statistically higher than low reputation PE-backed companies. The reason may be that high reputation PE funds have better management team and they can provide more value to the companies that they invested in. They can use their expertise to help the companies to improve their operating efficiency and generate more profit with the same level of assets.