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Underpricing Of Ipos And The Certification Role Of Venture Capitalists
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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 IPOs of Venture Capital Backed Ventures by : Christian Mehrer
Download or read book IPOs of Venture Capital Backed Ventures written by Christian Mehrer and published by GRIN Verlag. This book was released on 2003-11-02 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: Studienarbeit aus dem Jahr 2002 im Fachbereich BWL - Investition und Finanzierung, Note: 1,3, European Business School - Internationale Universität Schloß Reichartshausen Oestrich-Winkel (-), Veranstaltung: Seminar des Wahlpflichtfaches Finanzierung und Banken, Sprache: Deutsch, Abstract: The topic of this paper is the difference of venture capital (VC) backed initial public offerings (IPOs) and non backed IPOs and the share price performance of the companies after the IPO. Compared to non-backed IPOs, VC backed IPOs consist on average of younger and less profitable firms. Nevertheless, VC backed companies have better underwriters, more institutional investors and less underpricing (i.e. a discount on the initial share price due to asymmetrical information). It is therefore considered that the venture capitalist (VCist) has an important impact on the share price performance of the young firm due to his certification role. By screening and mentoring the backed venture in earlier stages of the VC cycle, he can well assess the business’ opportunities. Thus, if he invests in the venture and keeps shares after the IPO, he can proof credibility to other investors (credibility hypothesis). However, younger VCists tend to bring companies too quickly to the stock markets, because they need an IPO for building up a reputation (grandstanding hypothesis). This may be adverse to the venture. Our findings also outline that there is no clear advantage of VC-backed firms on the long-run. Thus, we conclude that it is not only important to think about a VC backing, but also about the VCist that is backing. Choosing the wrong VCist may even have a negative impact on the company’s future.
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 The Role of Venture Capital Backing in Initial Public Offerings by : Thomas J. Chemmanur
Download or read book The Role of Venture Capital Backing in Initial Public Offerings written by Thomas J. Chemmanur and published by . This book was released on 2009 with total page 58 pages. Available in PDF, EPUB and Kindle. Book excerpt: We empirically distinguish between three possible roles of venture backing in IPOs: certification, where venture-backed IPOs are priced closer to intrinsic firm value than non-venture backed IPOs due to venture capitalists' concern for their reputation; screening and monitoring, where VCs are able to either select better quality firms to back (screening), or help create such higher quality firms by adding value to them (monitoring) in the pre-IPO stage; and market power, where venture capitalists attract a greater number and higher quality of market participants such as underwriters, institutional investors, and analysts to an IPO, thus obtaining a higher valuation for the IPOs of firms backed by them. We argue that IPO underpricing is not the most appropriate measure to evaluate the role of venture backing in IPOs. Instead, we compare four sets of more direct measures between VC backed and non-VC backed (and between high-reputation VC backed and low-reputation VC backed) IPOs. The evidence strongly rejects the certification hypothesis, while finding considerable support for the market power hypothesis and some support for the screening and monitoring hypothesis. We find that venture capitalists attract higher quality market participants to the IPOs of firms backed by them, thus increasing the heterogeneity in investor beliefs about these firms, resulting in higher valuations for the equity of these firms (both in the IPO and in the secondary market immediately following the IPO).
Book Synopsis Venture Capitalist Certification in Initial Public Offerings by : Kathleen Weiss Hanley
Download or read book Venture Capitalist Certification in Initial Public Offerings written by Kathleen Weiss Hanley and published by . This book was released on 2008 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper provides support for the certification role of venture capitalists in initial public offerings. Consistent with the certification hypothesis, a comparison of venture capital backed IPOs with a matched control sample of nonventure capital backed IPOs from 1983 through 1987 matched as closely as possible by industry and offering size indicates that venture capital backing results in significantly lower initial returns and gross spreads. In effect, the presence of venture capitalists in the issuing firms serves to lower the total costs of going public and to maximize the net proceeds to the offering firm. In addition, we document that venture capitalists retain a significant portion of their holdings in the firm after the IPO.
Book Synopsis Grandstanding, Certification and the Underpricing of Venture Backed Ipos by : Peggy M. Lee
Download or read book Grandstanding, Certification and the Underpricing of Venture Backed Ipos written by Peggy M. Lee and published by . This book was released on 2002 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the role of venture capital backing in the underpricing of IPOs. Controlling for endogeneity in the receipt of venture funding, we find that venture capital backed IPOs experience larger first-day returns than comparable non-venture backed IPOs. Between 1980 and 2000, the average return difference ranges from 6.20 to 9.51 percent. This return difference is particularly pronounced in the quot;bubblequot; period of 1999-2000. As a potential explanation for these results, we explore a variant of the grandstanding hypothesis, in which the publicity associated with high first-day returns brings future commitments of capital to venture capitalists. Capital flow regressions show that commitments of capital are positively related to first-day returns.
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.
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 Institutional Affiliation and the Role of Venture Capital by : Yasushi Hamao
Download or read book Institutional Affiliation and the Role of Venture Capital written by Yasushi Hamao and published by . This book was released on 2000 with total page 114 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The Oxford Handbook of IPOs by : Douglas Cumming
Download or read book The Oxford Handbook of IPOs written by Douglas Cumming and published by Oxford University Press. This book was released on 2018-11-15 with total page 504 pages. Available in PDF, EPUB and Kindle. Book excerpt: Initial public offerings (IPOs), or new listings of companies on stock exchanges, are among the most important form of finance and generate considerable attention and excitement. They are used to raise capital or to monetize investments by the early generation of venture capital and other private investors. They are increasingly international in scope and reach, especially with non-American firms offering on American stock exchanges. This handbook provides a comprehensive overview of why companies list on stock exchanges, how IPOs are regulated, initially valued, and their performance in the short and long run. The first part examines the economics of IPOs, and offers statistics and regulatory insights from the United States and other countries around the world. The volume then covers mergers versus IPOs, as well as reverse mergers and special purpose acquisition companies. Part III analyzes institutional ties in IPOs, including analysts, investment banks, auditors, and venture capitalists. The fourth section provides international perspectives on IPOs from a number of countries around the world. Part V discusses alternatives to IPOs, including private marketplaces, and crowdfunding. Reflecting the range of disciplines that analyze IPOs, the contributors come from the fields of finance, international business and management, economics, and law. The chapters cover the latest information on a range of fundamental questions that are of interest to academics, practitioners, and policymakers alike.
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 The Price of Rapid Exit in Venture Capital-Backed Ipos by : Silvia Rossetto
Download or read book The Price of Rapid Exit in Venture Capital-Backed Ipos written by Silvia Rossetto and published by . This book was released on 2006 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper proposes an explanation for two empirical puzzles surrounding initial public offerings (IPOs). Firstly, it is well documented that IPO underpricing increases during quot;hot issuequot; periods. Secondly, venture capital (VC) backed IPOs are less underpriced than non venture capital backed IPOs during normal periods of activity, but the reverse is true during hot issue periods: VC backed IPOs are more underpriced than non VC backed ones. This paper shows that when IPOs are driven by the initial investor's desire to exit from an existing investment in order to finance a new venture, both the value of the new venture and the value of the existing firm to be sold in the IPO can be partially signalled by the investor's choice of price and fraction of shares sold in the IPO. When this is the case, the availability of attractive new ventures increases equilibrium underpricing, which is what we observe during hot issue periods. Moreover, I show that underpricing is affected by the severity of the moral hazard problem between an investor and the firm's manager. In the presence of a moral hazard problem the degree of equilibrium underpricing is more sensitive to changes in the value of the new venture. This can explain why venture capitalists, who often finance firms with more severe moral hazard problems, underprice IPOs less in normal periods, but underprice more strongly during hot issue periods. Further empirical implications relating the fraction of shares sold and the degree of underpricing are presented.
Book Synopsis Two Essays on Venture Capital by : Donald Flagg
Download or read book Two Essays on Venture Capital written by Donald Flagg and published by . This book was released on 2007 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: ABSTRACT: This dissertation includes two chapters that investigate the role venture capitalists (VCs) play in the underpricing and in the long-run performance of IPOs. The first chapter focuses on the underpricing of IPOs and attempts to determine the role that VCs play in this underpricing process. The evidence is consistent with a view that VCs agree to underpricing to ascertain benefits from both "grandstanding" and "spinning." The second chapter examines the long-run performance of IPOs and tries to determine the role that VCs play in the development of IPOs. Here, the evidence suggests that VC-backed IPOs appear to have better access to capital than non-VC-backed IPOs, but the long-run performance of VC-backed IPOs is generally mixed.
Book Synopsis Value creation by private equity-backed IPOs. Underpricing and long-term performance in Germany by : Matthias Hetzenecker
Download or read book Value creation by private equity-backed IPOs. Underpricing and long-term performance in Germany written by Matthias Hetzenecker and published by GRIN Verlag. This book was released on 2020-11-19 with total page 76 pages. Available in PDF, EPUB and Kindle. Book excerpt: Bachelor Thesis from the year 2019 in the subject Business economics - Review of Business Studies, grade: 1,0, University of applied Sciences Regensburg, language: English, abstract: This paper examines value creation by private equity-backed IPOs. It gives detailed insights on a mostly US-based research topic analyzing 134 German IPOs from 2002 to 2018, of which 49 were identified as PE-backed, and contributes empirical evidence on the discussion of private equity value creation. The empirical results provide detailed information on whether private equity financing can be a suitable financing source for companies by comparing and analyzing the performance differences between IPOs of companies with and without private equity sponsors. Furthermore, the paper provides empirical evidence on the IPO phenomena of underpricing and negative long-term performance for Germany, differentiating itself from former studies in terms of a broader time horizon and an extensive return calculation methodology. Since the locust swarms debate initiated by SPD politician Franz Müntefering, private equity investors have had to struggle with an extremely bad reputation in Germany. Unpopular measures such as company divestures or mass redundancies to achieve set turnover and return targets reinforce the negative image of financial investors. Accordingly, investor and business magnate Warren Buffet criticized that businesses under private equity control become a piece of merchandise. Nonetheless, the private equity industry continues to boom, reaching new records in terms of global business volume and transactions. Under these circumstances and new evolving discussions, it is essential to take a close look at the business model of private equity firms and to analyze potential short- and long-term value creation in their portfolio companies.
Book Synopsis UK IPO Underpricing by : Leon Hadass
Download or read book UK IPO Underpricing written by Leon Hadass and published by . This book was released on 2008 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyse the short run underpricing anomaly for a unique sample of 569 IPOs on the London Stock Exchange for the period 1985-2000 and find significant differences between the 1985-1997 period and 1998-2000 bubble period. Venture capitalists played a certification role in the former period but this ceased during the bubble years. These years featured significant increases in the average IPO proceeds, money left on the table, underpricing and a decline in operating quality. Furthermore, venture capitalists increasingly used prestigious underwriters with a history of underpricing during 1998-2000 which supports the corruption hypothesis of Loughran and Ritter (2004).
Book Synopsis Underpricing of Venture-backed and Non Venture-backed IPOs by : Stefanie A. Franzke
Download or read book Underpricing of Venture-backed and Non Venture-backed IPOs written by Stefanie A. Franzke and published by . This book was released on 2003 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
