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Venture Capital and Corporate Governance in the Newly Public Firm

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  • Yael V. Hochberg

Abstract

I examine the effects of venture capital backing on the corporate governance of the entrepreneurial firm at the time of transition from private to public ownership. Using a selection model framework that instruments for venture backing with variations in the supply of venture capital, I conduct three sets of tests comparing corporate governance in venture- and non--venture-backed initial public offering (IPO) firms. Venture-backed firms have lower levels of earnings management, more positive reactions to the adoption of shareholder rights agreements, and more independent board structures than similar non--venture-backed firms, consistent with better governance. These effects are not common to all pre-IPO large shareholders. Copyright 2011, Oxford University Press.

Suggested Citation

  • Yael V. Hochberg, 2011. "Venture Capital and Corporate Governance in the Newly Public Firm," Review of Finance, European Finance Association, vol. 16(2), pages 429-480.
    • Handle: RePEc:oup:revfin:v:16:y:2011:i:2:p:429-480
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    File URL: http://hdl.handle.net/10.1093/rof/rfr035
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    Cited by:

    1. Sixiao Xu, 2018. "Hedge Fund Activism and Corporate Life Stage: Case Studies of High-technology Companies," Journal of Business, LAR Center Press, vol. 3(1), pages 1-12, January.
    2. Rin, Marco Da & Hellmann, Thomas & Puri, Manju, 2013. "A Survey of Venture Capital Research," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, volume 2, chapter 0, pages 573-648, Elsevier.
    3. Li Jing & Huying Zhang, 2023. "Venture Capital, Compensation Incentive, and Corporate Sustainable Development," Sustainability, MDPI, vol. 15(7), pages 1-19, March.
    4. Jelic, Ranko & Zhou, Dan & Ahmad, Wasim, 2021. "Do stressed PE firms misbehave?," Journal of Corporate Finance, Elsevier, vol. 66(C).
    5. Cong, Lin William & Lee, Charles M.C. & Qu, Yuanyu & Tao, Shen, 2020. "Financing Entrepreneurship and Innovation in China," Foundations and Trends(R) in Entrepreneurship, now publishers, vol. 16(1), pages 1-64, January.

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