The Tradeoff Between Private Equity Sponsorship, Board Centrality, and Experience as Credible Signals for IPO Performance

ABSTRACT Private equity funds implement various management and governance practices in firms they endorse, signaling higher quality of sponsored IPOs (Initial Public Offer). However, the participation of such PE funds comes at a cost for newcomer firms, as they may lose both autonomy and future post-IPO earnings. If they do not choose to signal quality through PE funds, the IPO literature points to the validity of other mechanisms, such as the experience and centrality of the board of directors. We theorize and test the effect of the tradeoff between private equity sponsorship and board centrality and experience on IPO performance. We analyzed the effects of signaling on long-term performance through the one-year cumulative abnormal return in Brazilian IPOs issued between 2004 and 2013. Our results indicate that private equity sponsorship is the most effective signal, completely overtaking the relevance of board centrality and experience to explain IPO performance. However, these latter board characteristics significantly affected the performance of non-private equity-backed IPOs. Between PE-backed companies, there is a reverse effect of the board centrality on the IPO's performance and a substitution effect of the board's previous experience with IPO processes. 摘要： 私募基金通常对其投资的公司采用各种管理和治理措施，来表现这些公司上市时的高质量。但是，私募基金的参与同样会对这些公司造成损失，一是自主权的丧失，二是上市之后的盈利的分配比。假如不选择通过私募基金来给出高质量的信号，IPO文献指出可以用其他机制来达到同样的目的：即董事会成员的经验和在业界的中心化程度。本文意在探索在预测IPO绩效时这三者之间的得失。我们对2004-2013年巴西所有的IPO进行了分析，通过其一年的累计异常回报来检验信号效应对公司长远绩效的影响。结果表明，私募基金赞助的信号是最有效的，完全取代了董事会经验和中心化程度的影响。但是，后两个因素显著影响了非盈利私募基金投资的IPO公司。此外，在私募基金投资的公司中，董事会的中心化程度对IPO业绩起了相反的作用，董事会成员以往在IPO过程中的经验对IPO业绩起到了替补的作用。