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Agency Problems and the Performance of Venture-backed IPOs in Germany: Exit Strategies, Lock-up Periods, and Bank Ownership

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  • Wolfgang Bessler
  • Andreas Kurth

Abstract

The agency problems for initial public offerings are well documented in the literature. The objective of this research is to investigate the potential conflicts of interest for the 'Neuer Markt' in Germany. Of special interest are venture-backed IPOs and those in which banks acted as venture capitalist, underwriter, and provided analyst recommendations. High initial returns and outperformance are observed over the first 6 months of trading, which decreases significantly over the subsequent 18 months. The individual performance depends on the VC's underwriter and bank affiliation, exit behaviour, and lock-up commitment. Venture capitalists, and especially banks, timed their exit well. This indicates some serious agency problems in the German IPO market.

Suggested Citation

  • Wolfgang Bessler & Andreas Kurth, 2007. "Agency Problems and the Performance of Venture-backed IPOs in Germany: Exit Strategies, Lock-up Periods, and Bank Ownership," The European Journal of Finance, Taylor & Francis Journals, vol. 13(1), pages 29-63.
  • Handle: RePEc:taf:eurjfi:v:13:y:2007:i:1:p:29-63
    DOI: 10.1080/13518470600763661
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    References listed on IDEAS

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    1. Susanne Espenlaub & Marc Goergen & Arif Khurshed, 2001. "PO Lock-in Agreements in the UK," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 28(9&10), pages 1235-1278.
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    4. Bill Francis & Iftekhar Hasan, 2001. "The Underpricing of Venture and Nonventure Capital IPOs: An Empirical Investigation," Journal of Financial Services Research, Springer;Western Finance Association, vol. 19(2), pages 99-113, April.
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    7. Tim Loughran & Jay Ritter, 2004. "Why Has IPO Underpricing Changed Over Time?," Financial Management, Financial Management Association, vol. 33(3), Fall.
    8. Gompers, Paul & Lerner, Josh, 1999. "Conflict of Interest in the Issuance of Public Securities: Evidence from Venture Capital," Journal of Law and Economics, University of Chicago Press, vol. 42(1), pages 1-28, April.
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    10. Puri, Manju, 1996. "Commercial banks in investment banking Conflict of interest or certification role?," Journal of Financial Economics, Elsevier, vol. 40(3), pages 373-401, March.
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    12. Megginson, William L & Weiss, Kathleen A, 1991. " Venture Capitalist Certification in Initial Public Offerings," Journal of Finance, American Finance Association, vol. 46(3), pages 879-903, July.
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    Citations

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    Cited by:

    1. Dimitrios Gounopoulos & Johannes Hoebelt, 2013. "Development in financial markets and the performance of German IPOs," Chapters,in: Handbook of Research on IPOs, chapter 20, pages 421-462 Edward Elgar Publishing.
    2. Rosenbusch, Nina & Brinckmann, Jan & Müller, Verena, 2013. "Does acquiring venture capital pay off for the funded firms? A meta-analysis on the relationship between venture capital investment and funded firm financial performance," Journal of Business Venturing, Elsevier, vol. 28(3), pages 335-353.
    3. Goergen, Marc & Khurshed, Arif & Renneboog, Luc, 2009. "Why are the French so different from the Germans? Underpricing of IPOs on the Euro New Markets," International Review of Law and Economics, Elsevier, vol. 29(3), pages 260-271, September.
    4. Wolfgang Bessler & Martin Seim, 2013. "Venture capital and IPO waves in Europe: an analysis of firm and performance characteristics," Chapters,in: Handbook of Research on IPOs, chapter 15, pages 295-326 Edward Elgar Publishing.
    5. Rehnen, Lena Marie, 2016. "Exit strategies of loyalty programs," jbm - Journal of Business Market Management, Free University Berlin, Marketing Department, vol. 9(1), pages 564-596.
    6. repec:eee:finana:v:57:y:2018:i:c:p:106-121 is not listed on IDEAS
    7. Wolfgang Bessler & Stefan Thies, 2006. "Initial Public Offerings, Subsequent Seasoned Equity Offerings, and Long-Run Performance: Evidence from IPOs in Germany," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 11(3), pages 1-37, Fall.
    8. repec:kap:sbusec:v:48:y:2017:i:3:d:10.1007_s11187-016-9797-7 is not listed on IDEAS

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