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Do venture capitalists improve the operating performance of IPOs?

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  • Chen, Hung-Kun
  • Liang, Woan-lih

Abstract

This paper uses rigorous measures of operating performance and a sample extending into the post 2000 period to reexamine the performance of venture capital (VC) backed initial public offerings (IPOs). We find that the VC backed IPOs underperform non-VC backed IPOs, especially when firms have high excess cash, and propose that the higher excess cash retained in VC backed firms at IPO date may result in wasteful investment. Post-IPO real investment also confirms this notion. Further, our result holds whether or not VCs are on the board after the IPO date. Overall, our study supports the overinvestment hypothesis.

Suggested Citation

  • Chen, Hung-Kun & Liang, Woan-lih, 2016. "Do venture capitalists improve the operating performance of IPOs?," International Review of Economics & Finance, Elsevier, vol. 44(C), pages 291-304.
    • Handle: RePEc:eee:reveco:v:44:y:2016:i:c:p:291-304
    DOI: 10.1016/j.iref.2015.12.009
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    Cited by:

    1. Lo, Huai-Chun & Wu, Ruei-Shian & Kweh, Qian Long, 2017. "Do institutional investors reinforce or reduce agency problems? Earnings management and the post-IPO performance," International Review of Financial Analysis, Elsevier, vol. 52(C), pages 62-76.
    2. Ge, Yuanjing & Guo, Haifeng & Fung, Hung-Gay & Guang, Kuncheng, 2019. "CEO effects on the IPO market under different policy regimes: Evidence from the Chinese SME board," International Review of Economics & Finance, Elsevier, vol. 63(C), pages 163-175.
    3. Zhang, Yeqing & Zhang, Xueyong, 2020. "Patent growth and the long-run performance of VC-backed IPOs," International Review of Economics & Finance, Elsevier, vol. 69(C), pages 33-47.
    4. Helbing, Pia & Lucey, Brian M. & Vigne, Samuel A., 2019. "The determinants of IPO withdrawal – Evidence from Europe," Journal of Corporate Finance, Elsevier, vol. 56(C), pages 415-436.
    5. Peng, Xuan & Jia, Yibo & Chan, Kam C. & Wang, Xiongyuan, 2021. "Let us work together: The impact of customer strategic alliances on IPO underpricing and post-IPO performance," Journal of Corporate Finance, Elsevier, vol. 67(C).

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    More about this item

    Keywords

    Venture capital; Operating performance; Initial public offering;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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