The Relationship between LBOs, IPOs and Market Risk Premium: An Empirical Analysis of the European Market

Abstract

This paper investigates the relationship between leveraged buyouts (LBOs) and initial public offerings (IPOs) with the market risk premium in the European market. We expand our study to the period spanning from the first quarter of 1999 to the fourth quarter of 2016. Our longitudinal analysis finds evidence of an inverse relationship between market risk premium and the volume of LBOs, as well as a direct relationship between the latter and the stock index STOXX Europe 600. Additionally, our analysis of IPO operations confirms the significance of all factors considered in predicting the IPO trends in Europe, with a persisting accentuated impact generated by the market risk premium and the stock index STOXX Europe 600, also in this case. While previous analyses majorly focused on the US market, this paper is among first attempts to examine the topic of interest in the European context.