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The Effect Of Prestigious Underwriters And Their Affiliated Venture Capitalist Businesses On Earnings Management And Underpricing Of Ipo Issuers
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Book Synopsis The Effect of Prestigious Underwriters and Their Affiliated Venture Capitalist Businesses on Earnings Management and Underpricing of IPO Issuers by :
Download or read book The Effect of Prestigious Underwriters and Their Affiliated Venture Capitalist Businesses on Earnings Management and Underpricing of IPO Issuers written by and published by . This book was released on 2014 with total page 140 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Sinners Or Saints? Top Underwriters, Venture Capitalists, and IPO Underpricing by : Kose John
Download or read book Sinners Or Saints? Top Underwriters, Venture Capitalists, and IPO Underpricing written by Kose John and published by . This book was released on 2018 with total page 63 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines strategic interactions between venture capitalists (VCs) and top underwriters in the IPO process. We test two contrasting hypotheses: certification and rent extraction. On the one hand, the joint involvement of VCs and top underwriters can amplify their certification effect, reducing IPO underpricing. On the other hand, the rent extraction incentives of VCs and top underwriters, particularly in a repeated dealing context, can increase underpricing. We test these contrasting effects on IPO underpricing in the cross-section and around two regulatory shocks. First, VC-backed IPOs, VC-backed deals with top underwriters, and deals with stronger VC-underwriter ties exhibit greater underpricing. The cross-sectional results continue to hold in two-stage least squares estimation with geographical instruments. Second, the 2012 JOBS Act decreased disclosures by issuers and increased informational asymmetry. We find that IPO underpricing increased among VC-backed IPOs involving top underwriters after the JOBS Act. Third, a 2003 NASD rule limited explicit rents that may be extracted from preferential allocations of new IPO issues. We find that VC-backed IPO underpricing declined after the shock, and the effect was concentrated among VC-backed deals involving top underwriters and VCs with ties to underwriters. Importantly, we find no effect of top underwriters alone unless a VC is also involved. The observed decline in IPO underpricing cannot be explained by analyst involvement or the passage of Regulation FD. Moreover, repeat dealing between large institutions and underwriters similarly increases underpricing, but the effect does not explain the role of VC-underwriter ties and does not decline after the 2003 shock. Overall, our results support rent extraction, shed new light on the effects of VC backing, underwriters, and institutions on IPO underpricing, and emphasize the role of strategic interactions between them in the post-dot-com period.
Book Synopsis Currying Favor with Top Venture Capital Firms by : Daniel Bradley
Download or read book Currying Favor with Top Venture Capital Firms written by Daniel Bradley and published by . This book was released on 2018 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: We explore the central role that top venture capitalists play in the IPO underwriting market. We argue that underwriters curry favor with Top VCs, not necessarily issuing firms, because Top VCs have the ability to direct the most business in a repeated game sense to banks that treat them well. The relationship between VC firms and investment banks extends through time and therefore incentives extend beyond the current IPO. Consistent with this view, we find that Top VC-backed IPOs are more likely to get all-star coverage regardless of analyst bank affiliation. In turn, banks providing all-star coverage are more likely to be chosen to lead the next VC-backed deal. We find a positive relationship between underpricing and all-star coverage for Top VCs, but not non-Top VCs. Top VCs tolerate higher levels of underpricing because the information momentum generated by underpricing allows them to cash out at higher prices when the lockup expires.
Download or read book IPO Underpricing written by Marvin Lüers and published by . This book was released on 2018 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The IPO underpricing is a well-documented phenomenon in financial economics. In this paper 712 IPOs in the U.S. are analyzed during the period 1995 to 2016. The average underpricing of 34.3 percent for the sample is largely driven by the Dot-com bubble years. The focus of the analysis is on the relation of underpricing to reputation of investment banks and venture capitalists. Testing different reputation measures, the conclusion can drawn that the Carter-Manaster rank of the lead-left underwriter and the age of the venture capitalist with the highest cumulative investment are significant explanatory variables in a multivariate regression model. The empirical evidence shows that reputation is a driver of underpricing, however, with declining magnitude. Also, the data (partially) confirms the "grandstanding" hypothesis and shows that underpricing is related to certain momentum effects in the 180-day period post-IPO.
Book Synopsis Venture Capital and Firm Performance by : Jaeho Lee
Download or read book Venture Capital and Firm Performance written by Jaeho Lee and published by Routledge. This book was released on 2017-08-15 with total page 236 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book provides an analysis of the impact on underpricing and long-term performance of venture capital in IPOs, and of the ownership characteristics of venture capital companies. It investigates the performance of IPOs in Korea during the dot-com bubble-and-bust period. The book looks at venture capital firms and their participation, their reputation, and conflicts of interests, particularly in the context of the development of a new secondary stock market in an emerging market and these factors affect the pricing and performance effects of IPO firms. This book is a useful reference to those interested in promoting an active KOSDAQ type of stock market, and understanding how venture capitalists and their institutional affiliation may reduce information asymmetry and add value of IPO firms.
Book Synopsis Role of Underwriters in Restraining Earnings Management in Initial Public Offerings by : Hei Wai Lee
Download or read book Role of Underwriters in Restraining Earnings Management in Initial Public Offerings written by Hei Wai Lee and published by . This book was released on 2017 with total page 25 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate the relationship between underwriter reputation and earnings management of IPO firms over the period of 1991-2005. We find that IPO firms engage in less earnings management if they are underwritten by prestigious investment bankers. Furthermore, the role of prestigious underwriters in restraining earnings management of IPO issuers do not change during the Internet Bubble period or after the passage of the Sarbanes-Oxley Act (SOX). The findings support the certification role of underwriters in the IPO process.We also document that firms going public in the post-SOX period engage in less earnings management compared to firms going public in the pre-SOX period. Further findings suggest that the changing objectives of venture capitalists may explain the reduction in the level of earnings management of IPO firms following the passage of SOX.
Book Synopsis The Role of Venture Capitalists and Underwriters in the Underpricing of Initial Public Offerings by : Youssef Hussein Yaacoub
Download or read book The Role of Venture Capitalists and Underwriters in the Underpricing of Initial Public Offerings written by Youssef Hussein Yaacoub and published by . This book was released on 2010 with total page 156 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies the phenomenon of underpricing at the IPO Date. The focus is on the collaboration theory which states that the underwriter and the venture capitalist enter into a deal that ensures the mutual benefit for both parties. The collaboration between the two parties is strengthened over time. Underwriters would be permitted to benefit from underpricing the IPO issue in return for providing support to venture capitalists allowing them to exit at a high price. Venture capitalists are expected to increase their ownership in the firm just prior the IPO date in order to benefit from this collaboration. In this paper, I will provide support for the collaboration theory using a dataset of US firms that went public between 1996 and 2005. Furthermore, I will investigate whether certain modes of ownership increase at the IPO are particularly associated with underpricing.
Book Synopsis Earnings Management and Reputation of Venture Capitalists by : Wei Luo
Download or read book Earnings Management and Reputation of Venture Capitalists written by Wei Luo and published by . This book was released on 2006 with total page 25 pages. Available in PDF, EPUB and Kindle. Book excerpt: I investigate whether earnings management in venture-capital-backed IPO firms has any consequence on reputation of venture capitalists. I document that discretionary accruals in the IPO year are negatively related to the number of new IPOs backed by the same lead venture capitalist during the lockup period, the number of new IPOs during the first year after the lockup period, and the number of new IPOs during the second year after the lockup period. In addition, I find that if there is income-increasing earnings management in the IPO year, underpricing is greater for the new IPOs backed by the same lead venture capitalist in the first year after the expiration of lockup period. But there is no significantly positive relationship between the discretionary accruals in the IPO year and the underpricing of new IPOs backed by the same lead venture capitalist in the second year after the expiration of lockup period. Overall, I find some evidence that earnings management imposes costs on lead venture capitalists.
Book Synopsis Signalling in Science-Based IPOs by : Massimo G. Colombo
Download or read book Signalling in Science-Based IPOs written by Massimo G. Colombo and published by . This book was released on 2016 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies the combined effect of affiliation with prestigious universities, underwriters, and venture capitalists on the valuation of biotech ventures at IPO and their post-IPO stock performance. We argue that affiliation with prestigious universities provides affiliated firms with a quality signal in the scientific and innovation domain, resulting in performance superior to that of firms affiliated with either non-prestigious universities or non-affiliated firms. The signal differs from and is additive to those provided by affiliations with prominent venture capitalists and underwriters. Results for a sample of 254 European biotech ventures that went through an IPO between 1990 and 2009 confirm our predictions.
Book Synopsis Performance of Financial Institutions by : Patrick T. Harker
Download or read book Performance of Financial Institutions written by Patrick T. Harker and published by Cambridge University Press. This book was released on 2000-05-18 with total page 516 pages. Available in PDF, EPUB and Kindle. Book excerpt: The efficient operation of financial intermediaries--banks, insurance and pension fund firms, government agencies and so on--is instrumental for the efficient functioning of the financial system and the fueling of the economies of the twenty-first century. But what drives the performance of these institutions in today's global environment? In this volume, world-renowned scholars bring their expertise to bear on the issues. Primary among them are the definition and measurement of efficiency of a financial institution, benchmarks of efficiency, identification of the drivers of performance and measurement of their effects on efficiency, the impact of financial innovation and information technologies on performance, the effects of process design, human resource management policies, as well as others.
Book Synopsis Underpricing of Ipos and the Certification Role of Venture Capitalists by : Tilo Kraus
Download or read book Underpricing of Ipos and the Certification Role of Venture Capitalists written by Tilo Kraus and published by . This book was released on 2002 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper analyses the underpricing of IPOs and the role of venture capitalists in solving the underpricing problem for a data set of 124 venture capital backed and 184 non-venture capital backed companies that went public on Germany's Neuer Markt between March 1997 and May 2001. The slightly mitigated underpricing of venture capital backed IPOs becomes insignificant after controlling for ex-ante uncertainty and underwriter reputation with an interactive dummy variable approach. The two groups of companies do not differ either with respect to their risk characteristics or with respect to the reputation of the underwriter. However, venture capital backed companies that are underwritten by top banks seem to be underpriced more than their non-Venture Capital backed counterparts. Similarly, the impact of a similar level of ex-ante uncertainty on underpricing appears to be much weaker for venture capital backed IPOs. Therefore, this study provides evidence for different investor-perceptions of venture capital backed companies and supports a competitive rather than complementary interaction of venture capitalists and underwriters.
Book Synopsis Do Venture Capitalists Constrain or Encourage Earnings Management in Initial Public Offerings by : Suzanne G. Morsfield
Download or read book Do Venture Capitalists Constrain or Encourage Earnings Management in Initial Public Offerings written by Suzanne G. Morsfield and published by . This book was released on 2003 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines whether venture capitalists (VCs) provide value-added monitoring by constraining IPO-related earnings management in their portfolio firms. Finance theoretical literature is mixed as to its characterization of whether venture capitalists reduce principal-agent conflicts through their unique contracting, information collection, monitoring, and support skill/opportunity sets, or whether VCs have incentives to exploit their unique skills and proximity to firm management at the expense of other investors. Little empirical research has focused to date on identifying observable and measurable tests of specific elements of the perceived VC governance skills or incentives set on the actual market value of the firms in their investment portfolios. Earnings management around an IPO is a context where we may be able to both observe and quantify the impact of these perceived skills and incentives. Consistent with the current accounting theory of earnings management detection, we focus on a specific capital markets context where the use of inappropriate earnings-increasing discretionary accruals is expected - i.e., the initial public offering (IPO) setting. We find evidence that abnormal discretionary accruals are significantly lower and that long-run returns are significantly higher for VC-backed IPO firms relative to a matched sample of non-VC-backed IPO firms - these findings suggest that VCs behave more like principals than agents in this context. We also provide evidence that the direction of the discretionary accruals (i.e., income-increasing versus income-decreasing) is important when attempting to understand both the presence and determinants of earnings management in an IPO context. When positive and negative accruals are examined separately, VC presence is related to lower income-increasing discretionary accruals. We find no association between VC presence and income-decreasing accruals. Our results are robust to alternative variable specifications, and to controls for IPO market cycles and IPO lockup provisions.
Book Synopsis Three Essays in Equity Offerings and Related Issues by : Gemma Lee
Download or read book Three Essays in Equity Offerings and Related Issues written by Gemma Lee and published by . This book was released on 2006 with total page 133 pages. Available in PDF, EPUB and Kindle. Book excerpt: My dissertation consists of three chapters. My first chapter examines the degree of earnings management by IPO issuers and further investigates which financial institutions participating in the IPO process play a significant role in discouraging earnings manipulation. I employ a propensity score matching technique to improve on the existing approach of measuring earnings management, and also to control for potential endogeniety. After controlling for endogeniety in these two variables, the analysis shows that underwriters, but not venture capitalists are associated with a significant decrease in earnings management.
Book Synopsis Earnings Growth and Underpricing with Venture Capitalist Backed Initial Public Offerings by : Elke J.E. Klaassen
Download or read book Earnings Growth and Underpricing with Venture Capitalist Backed Initial Public Offerings written by Elke J.E. Klaassen and published by . This book was released on 2007 with total page 21 pages. Available in PDF, EPUB and Kindle. Book excerpt: The literature on the certification role of venture capitalists in initial public offerings (IPOs) is mixed and quite often no significant effect is found. Similarly, we find no significant effect of venture capitalists on IPO-underpricing in The Netherlands, if we study the impact of venture capitalists on all IPOs. However, underpricing is affected positively in venture capital backed companies that exhibit large net earnings growth and negatively in venture capital backed companies that exhibit small net earnings growth. The large underpricing of large net earnings growth companies suggests that informed insiders are not impressed by past net earnings of venture capital backed IPOs, but that past net earnings growth attracts less informed investors to bid fiercely for the shares after the IPO.
Book Synopsis Do More Reputable Financial Institutions Reduce Earnings Management by IPO Issuers? by : Gemma Lee
Download or read book Do More Reputable Financial Institutions Reduce Earnings Management by IPO Issuers? written by Gemma Lee and published by . This book was released on 2011 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study investigates whether financial intermediaries (FIs) participating in the IPO process play a significant role in restraining earnings management (EM). Specifically, we examine whether EM around IPOs is negatively related to investment banks (IBs) and venture capital (VC) investor reputations. In general, we do not find evidence that VCs as a group significantly restrain EM by IPO issuers. However, we uncover strong evidence that more reputable VCs and IBs are associated with significantly less EM, which is consistent with them implicitly certifying the quality of issuer financial reports. Moreover, a stronger reduction in EM is found when more reputable IBs are matched with more reputable VCs, which indicates that VC and IB reputation are complements rather than substitutes. These conclusions are invariant to adjustments for potential endogeneity of underwriter reputation and VC-backing or reputation.
Book Synopsis Do Underwriters Collaborate with Venture Capitalists in Ipos? Implications and Evidence by : Gerard Hoberg
Download or read book Do Underwriters Collaborate with Venture Capitalists in Ipos? Implications and Evidence written by Gerard Hoberg and published by . This book was released on 2009 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: We test for potential collaboration between underwriters, venture capitalists, and other major owner managers in initial public offerings (IPOs). We find that VCs who are more loyal and tolerate higher underpricing receive long-term marketing support and favorable analyst revisions, allowing them to exit at high prices. Cooperating underwriters receive repeat business and more profits from allocating underpriced shares. The end of this extended support coincides with heavy insider selling and significantly negative abnormal returns. VCs enforce cooperation by switching lead underwriters when favors are not returned. Our collaboration hypothesis resolves some previously surprising findings regarding underpricing, long-term underperformance, insider trading patterns, and analyst research.
Book Synopsis The Venture Capital Cycle by : Paul Alan Gompers
Download or read book The Venture Capital Cycle written by Paul Alan Gompers and published by MIT Press. This book was released on 2004 with total page 592 pages. Available in PDF, EPUB and Kindle. Book excerpt: An analysis of the venture capital process, from fund-raising through investing to exiting investments; a new edition with major revisions and six new chapters that reflect the latest research.
