Private Equity Offerings: Picking Bad versus Good Performers

Rule 144A of the Securities and Exchange Commission allows financial institutions with more than $100 million invested in securities to trade unregistered privately placed securities freely among themselves. The authors study the behavior of 91 selected issues released during 1988-1993. They compare the performance of the issues with six financial data points: operating income divided by assets; working capital divided by assets; market value of equity divided by assets; sales divided by assets; common equity divided by market value of equity; and earnings coefficient of variation. Predictions of failure and success are made based on these variables.