Evidence on private equity offering announcements: Strong and weak firms’ pooling versus separation

This study finds private equity firms classified as higher quality at the announcement date outperform lower quality issues right after the announcement. Yet, higher and lower quality announcers have similar positive announcement period abnormal returns. Since correct post-announcement re-pricing is related to announcement and prior historical information on quality differences, investors unsoundly respond to this available information prior to and at the announcement. The announcement likely serves as the catalyst initiating a re-determination of issuer quality and revaluation. Consistent with expected better relative future performance, higher quality issuers have higher pre-announcement asset turnovers, more liquidity and less management turnover.