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Long-run underperformance following private equity placements: The role of growth opportunities

  • Chou, De-Wai
  • Gombola, Michael
  • Liu, Feng-Ying
Registered author(s):

    Our results show that the post-offering performance of private equity issuers is related to growth opportunities. We find significant long-run underperformance in stock returns following private placements only for firms with high Tobin's q. High-q firms experience not only poor stock price performance but also poor operating performance. Low-q firms, in contrast, do not display significant stock price or operating underperformance. We further examine three potential explanations for this relation: over-investment in assets by managers, investor skewness preference, and over-optimism about earnings prospects. Our results are consistent with the view that investors are overly optimistic about the prospects of high growth firms.

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    File URL: http://www.sciencedirect.com/science/article/B6W5X-4V88FTT-1/2/11f8055e0e798b3c51cb1efe5010fd69
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    Article provided by Elsevier in its journal The Quarterly Review of Economics and Finance.

    Volume (Year): 49 (2009)
    Issue (Month): 3 (August)
    Pages: 1113-1128

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    Handle: RePEc:eee:quaeco:v:49:y:2009:i:3:p:1113-1128
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620167

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