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Venture Capital Valuation, Partial Adjustment, and Underpricing: Behavioral Bias or Information Production?

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  • Jan Jindra
  • Dima Leshchinskii

Abstract

Using a sample of venture capital (VC)-backed initial public offerings (IPOs), we analyze the role played by perceived valuation changes on IPO underpricing. We find that perceived valuation change from the last pre-IPO VC round to the IPO affects IPO underpricing in a nonlinear way. Further analysis indicates that information-based theories, not behavioral biases, explain this nonlinearity. We also find that the previously documented partial adjustment effect and its nonlinear impact on IPO underpricing are related to the trajectory of the perceived valuation changes, which stands in stark contrast to prior evidence of the importance of behavioral biases.

Suggested Citation

  • Jan Jindra & Dima Leshchinskii, 2015. "Venture Capital Valuation, Partial Adjustment, and Underpricing: Behavioral Bias or Information Production?," The Financial Review, Eastern Finance Association, vol. 50(2), pages 173-219, May.
  • Handle: RePEc:bla:finrev:v:50:y:2015:i:2:p:173-219
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    File URL: http://hdl.handle.net/10.1111/fire.12064
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    Cited by:

    1. Geranio, Manuela & Mazzoli, Camilla & Palmucci, Fabrizio, 2017. "The effects of affiliations on the initial public offering pricing," International Review of Economics & Finance, Elsevier, vol. 51(C), pages 295-313.
    2. Lin, Winston T. & Chen, Yueh H. & Hung, TingShu, 2019. "A partial adjustment valuation approach with stochastic and dynamic speeds of partial adjustment to measuring and evaluating the business value of information technology," European Journal of Operational Research, Elsevier, vol. 272(2), pages 766-779.
    3. Douglas Cumming & Uwe Walz & Jochen Christian Werth, 2016. "Entrepreneurial Spawning: Experience, Education, and Exit," The Financial Review, Eastern Finance Association, vol. 51(4), pages 507-525, November.

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