Do Private Equity Investors Create Value for Italian Initial Public Offerings?

This study analyses the role of private equity (PE) backing in initial public offerings (IPOs) using a dataset of 227 companies that went public on the Milan Stock Exchange between January 1995 and December 2007. The evidence rejects the certification and monitoring hypotheses and provides considerable support for the market power hypothesis. In accordance with Chemmanur and Loutskina (2006), we suggest that PE investors exploit their relationships with the key IPO market players to attract attention to the IPOs of firms backed by PE, thus obtaining a higher equity valuation (both in the IPO and in the secondary market).