Speaker: Natalia Matanova , PennState Abington
The paper examines the impact of private equity (PE) and venture capital (VC) ownership retention on financially sponsored initial public offerings’ (IPO) cash reserves. The results show that backed IPOs with higher VC (PE) ownership concentration maintain significantly higher (lower) cash ratios post-flotation, which is driven by fundamentally different growth opportunities of these firms. Post-IPO voluntary ownership retention by PE and VC investors mitigates the agency problems, which allows financially constrained firms to hoard cash. PE and VC syndicate characteristics (bank affiliation and syndicate size) have significant impact on cash reserves. Moreover, the market values positively in the long-run cash held by companies with post-IPO PE investors’ equity ownership. Overall, these results suggest that continued involvement of financial sponsors in the post-flotation period is value creating.