Analysis of the IPO Valuation Premium Puzzle: the Factor of Information Asymmetry

Osiichuk, Dmytro

doi:10.18276/frfu.2016.79-08

Cited by 3 publications

(2 citation statements)

References 32 publications

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“…Therefore, the sector or industry can be a determinant of the exit returns generated by a VC firm. There could be seasonal exuberance to specific industries, which paves the way for easier exits and higher returns (Osiichuk, 2016). Industry factors are determinants in the choice of exit route, and exit returns are characterised by the exit route adopted at exit.…”

Section: Hypotheses Developmentmentioning

confidence: 99%

Decoding VC exit returns: the Indian experience

Dominic

Gopalaswamy

2021

JIBR

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Purpose This paper aims to analyse the effect of the investment duration, the overall market condition and the industry to which the investee firm belongs on exit returns realised by venture capital (VC) firms invested in Indian market, using hierarchical regression models. Design/methodology/approach The study examines the relationship that exist among the variables of interest by analysing all the 210 exits that happened in the Indian VC market over the period 2004–2017 by using analytical tools such as moving averages, hierarchical regressions and pooled ordinary least squares regression. Findings Exit return has an approximate U-shaped relationship with investment duration, and the turning point in the convex relationship happens around seven to eight years after investment. Returns are weakly related to the market condition, discarding the market timing hypothesis. Relationship patterns are found to be generally unvarying during the time period under study. Research limitations/implications The results indicate VC funds in the Indian market tend to exit in a brief time span and gain substantial returns from the immediate exits beyond, which returns start dipping. This points to the illiquidity of the Indian VC market wherein the exits from “lemons” are quite tricky, which make them remain invested for longer durations and eroding the value substantially in the process. VC funds may make rational investment/exit decisions in the Indian market capitalising this knowledge. Originality/value This study empirically connects the value creating factors in a VC process to the established theories about the early stage investments and analyse the applicability and relevance of those theories in a market with high growth potential like India.

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Section: Hypotheses Developmentmentioning

confidence: 99%

Decoding VC exit returns: the Indian experience

Dominic

Gopalaswamy

2021

JIBR

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“…IPOs again were the least preferred exit route with just five exits choosing this option. It may be attributed to the difficulty in exiting by going public, as compared to other exit options like secondary sales or strategic sales (Osiichuk, 2016).…”

Section: Exploring the Exit Patterns With Respect To The Type Of Exitmentioning

confidence: 99%

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2020

Asian Economic and Financial Review

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This study investigated the patterns adopted by VCs in their choice of exit routes The relationship between industry, transaction, and fund level variables with type of exit route chosen was also analyzed. Exit patterns were coded based on industry, type of exit and nature of fund. The relationship between industry, transaction, fund level variables and the type of exit route chosen was analyzed based on 221 transactions that occurred in India during the period from 2004 to 2017. High levels of similarity in the exit patterns of the service and manufacturing industries were observed. The myth that IPO from a service industry generates higher value does not seem to hold true. The choice of exit route depends on the type of exit viz. partial/complete exit. The probability of market exit increased by almost 2.8 times when the exit was partial. The fact that there is similarity in exit patterns of both foreign origin and Indian funds is beneficial for entrepreneurs paving way for strategy changes. Secondly the nondifferential impact of industry on exit route choice provides further options for both the entrepreneurs and investors. Contribution/ Originality: This study contributes to the existing scant literature on VC exits that specifically focuses on exits by early stage investors. This study provides the first evidence for the Indian VC market that the choice of exit route depends on the type of exit viz. partial/complete exit.

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Is the venture capital market liquid? Evidence from India

Dominic

Gopalaswamy

2019

Global Finance Journal

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Analysis of the IPO Valuation Premium Puzzle: the Factor of Information Asymmetry

Cited by 3 publications

References 32 publications

Decoding VC exit returns: the Indian experience

Decoding VC exit returns: the Indian experience

Untitled

Is the venture capital market liquid? Evidence from India

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