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

De Wai Chou, Michael Gombola*, Feng Ying Liu

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

14 Citations (Scopus)


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.

Original languageEnglish
Pages (from-to)1113-1128
Number of pages16
JournalQuarterly Review of Economics and Finance
Issue number3
Publication statusPublished - 2009 Aug
Externally publishedYes


  • Growth opportunities
  • Long-run performance
  • Private placements

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics


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