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Venture Capitalists, Syndication and Governance in Initial Public Offerings

  • Igor Filatotchev

    ()

  • Mike Wright

    ()

  • Mufit Arberk

    ()

This paper examines the development of effective boards in venture capital (VC)-backed initial public offerings. It argues that VC-backed IPOs suffer from two sets of agency costs which are related to principal–agent and principal–principal relationships between the founders and members of the VC syndicate. Using a unique sample of 293 entrepreneurial IPOs in the UK it shows that VC syndicates invest in relatively more risky firms. VC-backed IPOs have more independent boards than IPOs with no VC involvement, with board independence being higher in syndicated VC-backed firms. These results are consistent with assumption that these governance factors are used to mitigate agency costs associated with VC involvement in IPO firms. We also find that in syndicated IPOs there is a higher equity presence of passive private equity firms investing alongside VC firms. Copyright Springer 2006

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File URL: http://hdl.handle.net/10.1007/s11187-005-2051-3
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Article provided by Springer in its journal Small Business Economics.

Volume (Year): 26 (2006)
Issue (Month): 4 (05)
Pages: 337-350

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Handle: RePEc:kap:sbusec:v:26:y:2006:i:4:p:337-350
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=100338

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  1. Kanniainen, V. & Keuschnigg, C., 2000. "The Optimal Portfolio of Start-up Firms in Venture Capital Finance," University of Helsinki, Department of Economics 486, Department of Economics.
  2. Steven N. Kaplan & Per Stromberg, 2000. "Financial Contracting Theory Meets the Real World: An Empirical Analysis of Venture Capital Contracts," NBER Working Papers 7660, National Bureau of Economic Research, Inc.
  3. Douglas J. Cumming, 2006. "The Determinants of Venture Capital Portfolio Size: Empirical Evidence," The Journal of Business, University of Chicago Press, vol. 79(3), pages 1083-1126, May.
  4. Gavin C Reid, 1997. "Small Firms' Actions and their Survival Probabilities," CRIEFF Discussion Papers 9721, Centre for Research into Industry, Enterprise, Finance and the Firm.
  5. Mike Wright, 1998. "Venture Capital and Private Equity: A Review and Synthesis," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 25(5&6), pages 521-570.
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