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Venture Capital Conflicts of Interest: Evidence from Acquisitions of Venture-Backed Firms

  • Masulis, Ronald W.
  • Nahata, Rajarishi

We analyze the effects of venture capital (VC) backing on profitability of private firm acquisitions. We find that VC backing leads to significantly higher acquirer announcement returns, averaging 3%, even after controlling for deal characteristics and endogeneity of venture funding. This leads us to investigate whether some VCs have interests that conflict with those of other investors. We show that such conflicts arise from VCs having financial relationships with both acquirers and targets, corporate VCs having a dominant strategic focus, and VC funds nearing maturity experiencing pressure to liquidate. Our conclusions follow from examinations of target takeover premia and acquirer announcement returns.

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Article provided by Cambridge University Press in its journal Journal of Financial and Quantitative Analysis.

Volume (Year): 46 (2011)
Issue (Month): 02 (April)
Pages: 395-430

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Handle: RePEc:cup:jfinqa:v:46:y:2011:i:02:p:395-430_00
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