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The effects of venture capitalist affiliation to underwriters on short- and long-term performance in French IPOs

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  • Chahine, Salim
  • Filatotchev, Igor
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    Abstract

    This paper explores the signalling and monitoring effects of venture capital (VC) backing and venture capitalist affiliation to lead underwriters on performance of IPOs in France. IPOs in which VCs are affiliated to lead underwriters (i.e., affiliated VCs) have lower underpricing than both non-affiliated VC-backed IPOs and non-VC-backed IPOs. Similarly, affiliated VC-backed IPOs exhibit greater earnings surprise and better market performance at the end of the one-year period following the IPO date. Controlling for Fama and French [Fama, E.F., & French, K. 1993. Common Risk Factors in the Returns on Stock and Bonds. Journal of Financial Economics 33, 3-56] risk factors, our results suggest that IPOs with affiliated VCs in general, and particularly those affiliated with more prestigious underwriters, have a higher long-term abnormal return than both non-affiliated and non-VC-backed IPOs. Our analysis of IPO performance indicates that more prestigious underwriters enhance effective screening, certification and monitoring roles of affiliated VCs.

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    Bibliographic Info

    Article provided by Elsevier in its journal Global Finance Journal.

    Volume (Year): 18 (2008)
    Issue (Month): 3 ()
    Pages: 351-372

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    Handle: RePEc:eee:glofin:v:18:y:2008:i:3:p:351-372

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    Web page: http://www.elsevier.com/locate/inca/620162

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    Cited by:
    1. Hatem Mansali & Florence Labégorre, 2010. "Les performances économiques et boursières à long terme des sociétés introduites en bourse:le cas du marché français (1990-2003)," Revue Finance Contrôle Stratégie, revues.org, vol. 13(2), pages 67-106., June.
    2. Sophie Pommet, 2013. "The Impact of Venture Capital Investment Duration on the Survival of French IPOs," GREDEG Working Papers 2013-32, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis.
    3. Sophie Pommet, 2013. "The impact of venture capital investment duration on the survival of French IPOs," Working Papers halshs-00923957, HAL.

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