Venture Capitalist Certification in Initial Public Offerings

Abstract

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IPO pricing: growth rates implied in offer prices

“…Worse post-IPO market performance is also found for firms going public after a period of unusually high returns for seasoned companies in their sector (Kulkarni and Sabarwal 2007) and for venture-backed IPOs (the dummy variable D_VC). Our results do not confirm previous US-based findings of venture-backed IPOs outperforming non-venture backed IPOs (Megginson and Weiss 1991;Brav and Gompers 1997;Chan et al 2008). Given that there are significant differences in the nature of venture capitalists in Europe and the US, however, findings on the role of venture capital and its influence on long-run performance are not generally transferable between the regions.…”

Equity Underwriting Spreads at Commercial Bank Holding Companies and Investment Banks

“…While bank holding companies could purchase investment banks with already established reputations, until late 1999 there were significant limits on the size of investment banks that a BHC could acquire. Megginson and Weiss (1991) find that gross equity underwriting spreads are negatively related to the size of IPO issues. Gande et al (1999) also report that the relationship between issue size and gross spreads is negative and significant for all equity issues.…”

“…In their model, underwriter spreads are positively related to reputation. Beatty and Welch (1996) find that reputable underwriters earned larger compensation over the sample period 1992Y1994, while Megginson and Weiss (1991) report opposite findings over the period 1983Y1987. As relatively new entrants into equity underwriting, commercial-bank related firms have had little time to build reputations.…”

“…Ritter (1999) finds that venture-capital backed issues are associated with larger initial returns over the period 1989Y1995, whereas Megginson and Weiss (1991) report that venture capital-backed issues are associated with less underpricing and lower gross spreads in an earlier period (1983Y1987). Venture capital backing may influence gross spreads because the costs of monitoring could be lower in the presence of third-party specialists.…”

Interaction Between Short Selling and Potential Insider Selling in the IPO Aftermarket

“…There are two measures of underwriting ranking proposed. We collect data on both the Carter and Manaster (1990) and Megginson and Weiss (1991), however, we use the Megginson and Weiss measure in our reported results. 1 3.1.4.…”