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Can VCs Time the Market? An Analysis of Exit Choice for Venture-backed Firms

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  • Eric Ball
  • Hsin Hui Chiu
  • Richard Smith

Abstract

We use a sample of 8,163 venture-backed companies over three decades to test the competing hypotheses that levels and relative shares of IPO (initial public offering) and M&A (mergers and acquisitions) exits are affected by market timing, versus pseudo-market timing that reflects market conditions. We find evidence of pseudo-market timing. Venture-backed issuers react to market or sector runups but do not predict downturns. We find no evidence that firm-specific market timing contributes to IPO or M&A waves. We also find that acquirers turn to acquisition when other opportunities are unattractive, and that the market may be slow to recognize that such opportunities are declining. The Author 2011. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oup.com., Oxford University Press.

Suggested Citation

  • Eric Ball & Hsin Hui Chiu & Richard Smith, 2011. "Can VCs Time the Market? An Analysis of Exit Choice for Venture-backed Firms," Review of Financial Studies, Society for Financial Studies, vol. 24(9), pages 3105-3138.
  • Handle: RePEc:oup:rfinst:v:24:y:2011:i:9:p:3105-3138
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    File URL: http://hdl.handle.net/10.1093/rfs/hhr042
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    Cited by:

    1. Keiichi Hori & Hiroshi Osano, 2013. "Managerial Incentives and the Role of Advisors in the Continuous-Time Agency Model," Review of Financial Studies, Society for Financial Studies, vol. 26(10), pages 2620-2647.
    2. Susan Chaplinsky & Swasti Gupta-Mukherjee, 2013. "The Decline in Venture-Backed IPOS: Implications for Capital Recovery," Chapters,in: Handbook of Research on IPOs, chapter 2, pages 35-56 Edward Elgar Publishing.
    3. Josh Lerner & Amit Seru, 2017. "The Use and Misuse of Patent Data: Issues for Corporate Finance and Beyond," NBER Working Papers 24053, National Bureau of Economic Research, Inc.
    4. Rin, Marco Da & Hellmann, Thomas & Puri, Manju, 2013. "A Survey of Venture Capital Research," Handbook of the Economics of Finance, Elsevier.
    5. repec:eee:tefoso:v:127:y:2018:i:c:p:141-153 is not listed on IDEAS
    6. Song, Kyojik “Roy” & Kim, Inho & Chang, Young K., 2014. "A reverse takeover as an exit strategy of venture capital: Korean evidence," Pacific-Basin Finance Journal, Elsevier, vol. 29(C), pages 182-198.
    7. repec:spr:jbecon:v:88:y:2018:i:3:d:10.1007_s11573-017-0874-4 is not listed on IDEAS

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