Authors: Donald Ross; Mike Hopkins
Addresses: Faculty of Business, Australian Catholic University, 8-20 Napier Street, North Sydney, NSW 2060, Australia. ' Faculty of Business, Australian Catholic University, 8-20 Napier Street, North Sydney, NSW 2060, Australia
Abstract: Fear of private equity (PE) firms 'putting lipstick on the pig' when divesting investee companies is common in the IPO investor market. PE firms wishing to maximise their exit value showcase investee companies in the best possible light. While PE firms are thought to add considerable value to investee companies, substantial concerns have been voiced over cash stripping, accounting manipulation and short-term cost cutting to maximise reported profits. This study used a judgement experiment and qualitative interviews with buy-side financial analysts to investigate how the characteristics of the PE firm and its involvement with the investee company influence IPO investors' decision making. The research confirms buy-side analyst concerns over window dressing to be real and exacerbated by evidence of intense PE firm involvement over short durations of time. Concerns can be mitigated, however, by positive signals of future prospects, notably the degree of retained ownership and perceived PE firm quality.
Keywords: private equity; IPO; certification; window dressing; reputations; retained ownership; investor perceptions; initial public offering; behavioural finance.
International Journal of Behavioural Accounting and Finance, 2011 Vol.2 No.3/4, pp.259 - 272
Published online: 20 Jan 2012 *Full-text access for editors Access for subscribers Purchase this article Comment on this article