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Venture Capital Distributions: Short-Run and Long-Run Reactions

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  • Paul Gompers

    (Harvard Business School and NBER)

  • Josh Lerner

    (Harvard Business School and NBER)

Abstract

Venture capital distributions, a legal form of insider trading, provides an ideal arena for examining the share price impact of transactions by informed parties. These sales, which occur after substantial run-ups in share value, generate a substantial price reaction immediately around the event. In the months after distribution, returns apparently continue to be negative. When the short- and long-run reactions are decomposed, they are consistent with the view that venture capitalists use inside information to time stock distributions: Distributions of firms brought public by lower quality underwriters and of less seasoned firms have more negative price reactions. Copyright The American Finance Association 1998.

Suggested Citation

  • 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.
  • Handle: RePEc:bla:jfinan:v:53:y:1998:i:6:p:2161-2183
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