Does the performance of private investment in public equity firms behave differently in different life cycles?

Shailendra Kumar Rai and Imlak Shaikh

Applied Economics, 2021, vol. 53, issue 17, 1935-1951

Abstract: Private investment in public equity firms (PIPE) is growing exponentially across the globe, and most of the theoretical and empirical works are accessible for the U.S. and European settings. There is a lack of studies in emerging markets like India. Our empirical research consists of 810 public equity (PE) transactions, out of which 761 are PIPE deals for the period 1998–2016. The study aims to investigate whether PIPE deals show different performance in different life cycles as distinct stages and operating targets. Under the hypothesis of information asymmetry and financial distress, we find that PIPE issuance significantly impacts sales growth, returns on equity, and operating performance. It is evident that the growth stage shows an adverse impact on future sales growth and profitability while it's encouraging for return on equity. Our findings based on the firm's life cycle show that maturity and stagnant stage reveal pronounced effects. Moreover, investor type and investment flow either from Indian-dedicated, foreign, and co-investment show a favourable impact on future profitability. One of the study's essential findings is that a firm in the growth stage needs more investment in the form of PIPE issuance, and it shows a significant impact on profitability and liquidity.

Date: 2021
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DOI: 10.1080/00036846.2020.1854666

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