We analyze shareholder wealth effects of private equity investments in European publicly listed firms. Using a novel and hand-collected data set of 377 transactions between 1997 and 2006 we find cumulative average abnormal returns of 7.11% around the announcement day from t=-1 to t=+1. When we examine the fundamental reasons for the stock market's reaction to the announcement of stock purchases by private equity firms we find that target corporations are undervalued with respect to similar trading companies. Thus, positive shareholder wealth effects are attributable to the perception of market participants that private equity firms act as superior security analysts in the sense that they generate returns by identifying and investing in undervalued securities. Moreover, we find that target firms do not show superior relative post-announcement operating performance results, indicating that the anticipated mitigation of agency costs and enhanced monitoring efforts by the investor do not serve as an explanation for abnormal returns around the announcement day.     «

We analyze shareholder wealth effects of private equity investments in European publicly listed firms. Using a novel and hand-collected data set of 377 transactions between 1997 and 2006 we find cumulative average abnormal returns of 7.11% around the announcement day from t=-1 to t=+1. When we examine the fundamental reasons for the stock market's reaction to the announcement of stock purchases by private equity firms we find that target corporations are undervalued with respect to similar tradi...     »