What influences investors' perceptions of private equity firm window dressing at IPO?

Fear of private equity (PE) firms 'putting lipstick on the pig' when divesting investee companies is common in the IPO investor market. PE firms wishing to maximise their exit value showcase investee companies in the best possible light. While PE firms are thought to add considerable value to investee companies, substantial concerns have been voiced over cash stripping, accounting manipulation and short-term cost cutting to maximise reported profits. This study used a judgement experiment and qualitative interviews with buy-side financial analysts to investigate how the characteristics of the PE firm and its involvement with the investee company influence IPO investors' decision making. The research confirms buy-side analyst concerns over window dressing to be real and exacerbated by evidence of intense PE firm involvement over short durations of time. Concerns can be mitigated, however, by positive signals of future prospects, notably the degree of retained ownership and perceived PE firm quality.