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Agency Problems and the Performance of Venture-backed IPOs in Germany: Exit Strategies, Lock-up Periods, and Bank Ownership

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  • Wolfgang Bessler
  • Andreas Kurth
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    Abstract

    The agency problems for initial public offerings are well documented in the literature. The objective of this research is to investigate the potential conflicts of interest for the 'Neuer Markt' in Germany. Of special interest are venture-backed IPOs and those in which banks acted as venture capitalist, underwriter, and provided analyst recommendations. High initial returns and outperformance are observed over the first 6 months of trading, which decreases significantly over the subsequent 18 months. The individual performance depends on the VC's underwriter and bank affiliation, exit behaviour, and lock-up commitment. Venture capitalists, and especially banks, timed their exit well. This indicates some serious agency problems in the German IPO market.

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/13518470600763661
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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal The European Journal of Finance.

    Volume (Year): 13 (2007)
    Issue (Month): 1 ()
    Pages: 29-63

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    Handle: RePEc:taf:eurjfi:v:13:y:2007:i:1:p:29-63

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    Web page: http://www.tandfonline.com/REJF20

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    Related research

    Keywords: Initial public offerings; venture capital; agency problems; bank equity ownership;

    References

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    1. Yasushi Hamao & Frank Packer & Jay Ritter, 1998. "Institutional affiliation and the role of venture capital: evidence from initial public offerings in Japan," Research Paper 9807, Federal Reserve Bank of New York.
    2. Paul Gompers & Josh Lerner, 1998. "Venture Capital Distributions: Short-Run and Long-Run Reactions," Journal of Finance, American Finance Association, vol. 53(6), pages 2161-2183, December.
    3. Brad Barber, 2001. "Can Investors Profit from the Prophets? Security Analyst Recommendations and Stock Returns," Journal of Finance, American Finance Association, vol. 56(2), pages 531-563, 04.
    4. Bill Francis & Iftekhar Hasan, 2001. "The Underpricing of Venture and Nonventure Capital IPOs: An Empirical Investigation," Journal of Financial Services Research, Springer, vol. 19(2), pages 99-113, April.
    5. Tykvová, Tereza & Walz, Uwe, 2004. "Are IPOs of Different VCs Different?," ZEW Discussion Papers 04-32, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    6. Megginson, William L & Weiss, Kathleen A, 1991. " Venture Capitalist Certification in Initial Public Offerings," Journal of Finance, American Finance Association, vol. 46(3), pages 879-903, July.
    7. Michaely, Roni & Womack, Kent L, 1999. "Conflict of Interest and the Credibility of Underwriter Analyst Recommendations," Review of Financial Studies, Society for Financial Studies, vol. 12(4), pages 653-86.
    8. Susanne Espenlaub & Marc Goergen & Arif Khurshed, 2001. "PO Lock-in Agreements in the UK," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 28(9&10), pages 1235-1278.
    9. Lerner, Joshua, 1994. "Venture capitalists and the decision to go public," Journal of Financial Economics, Elsevier, vol. 35(3), pages 293-316, June.
    10. Puri, Manju, 1996. "Commercial banks in investment banking Conflict of interest or certification role?," Journal of Financial Economics, Elsevier, vol. 40(3), pages 373-401, March.
    11. Paul Gompers & Josh Lerner, 1998. "Conflict of Interest in the Issuance of Public Securities: Evidence from Venture Capital," NBER Working Papers 6847, National Bureau of Economic Research, Inc.
    12. Alon Brav & Paul A. Gompers, 2003. "The Role of Lockups in Initial Public Offerings," Review of Financial Studies, Society for Financial Studies, vol. 16(1), pages 1-29.
    13. Ber, Hedva & Yafeh, Yishay & Yosha, Oved, 2001. "Conflict of interest in universal banking: Bank lending, stock underwriting, and fund management," Journal of Monetary Economics, Elsevier, vol. 47(1), pages 189-218, February.
    14. Tim Loughran & Jay Ritter, 2004. "Why Has IPO Underpricing Changed Over Time?," Financial Management, Financial Management Association, vol. 33(3), Fall.
    15. Tykvová, Tereza & Walz, Uwe, 2004. "Are IPOs of different VCs different?," CFS Working Paper Series 2004/02, Center for Financial Studies (CFS).
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    Cited by:
    1. Goergen, M. & Khurshed, A. & Renneboog, L.D.R., 2009. "Why are the French so Different from the Germans? Underpricing of IPOs on the Euro New Markets," Discussion Paper 2009-022, Tilburg University, Tilburg Law and Economic Center.
    2. Rosenbusch, Nina & Brinckmann, Jan & Müller, Verena, 2013. "Does acquiring venture capital pay off for the funded firms? A meta-analysis on the relationship between venture capital investment and funded firm financial performance," Journal of Business Venturing, Elsevier, vol. 28(3), pages 335-353.
    3. Wolfgang Bessler & Stefan Thies, 2006. "Initial Public Offerings, Subsequent Seasoned Equity Offerings, and Long-Run Performance: Evidence from IPOs in Germany," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 11(3), pages 1-37, Fall.

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