Speaker: Natalia Matanova , Pennsylvania State University
The paper examines the impact of private equity (PE) and venture capital (VC)ownership retention on financially sponsored initial public offerings’ (IPO) cashreserves. The results show that backed IPOs with higher VC (PE) ownershipconcentration maintain significantly higher (lower) cash ratios post-flotation, which isdriven by fundamentally different growth opportunities of these firms. Post-IPOvoluntary ownership retention by PE and VC investors mitigates the agency problems,which allows financially constrained firms to hoard cash. PE and VC syndicatecharacteristics (bank affiliation and syndicate size) have significant impact on cashreserves. Moreover, the market values positively in the long-run cash held bycompanies with post-IPO PE investors’ equity ownership. Overall, these results suggestthat continued involvement of financial sponsors in the post-flotation period is valuecreating.