The effects of venture capitalist affiliation to underwriters on short- and long-term performance in French IPOs |
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| Institution: | 1. Macquarie University, Faculty of Business and Economics, Sydney, NSW 2109, Australia;2. Renmin University of China, The School of Finance, Beijing 100872, China;1. Department of Finance, College of Business Administration, University of Central Florida, Orlando, FL 32816-1400 USA;2. School of Hospitality Management, Shanghai Business School, 2271 West Zhong Shan Rd., Shanghai 200235, China;1. School of Business, University of Kansas, Lawrence, KS 66045, United States;2. College of Business & Economics, Towson University, Towson, MD 21252, United States;3. College of Business, Stony Brook University, Stony Brook, NY 11794, United States;1. Carroll School of Management, Boston College, Chestnut Hill, MA 02467, United States;2. Gabelli School of Business, Fordham University, New York, NY 10023, United States |
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| Abstract: | This paper explores the signalling and monitoring effects of venture capital (VC) backing and venture capitalist affiliation to lead underwriters on performance of IPOs in France. IPOs in which VCs are affiliated to lead underwriters (i.e., affiliated VCs) have lower underpricing than both non-affiliated VC-backed IPOs and non-VC-backed IPOs. Similarly, affiliated VC-backed IPOs exhibit greater earnings surprise and better market performance at the end of the one-year period following the IPO date. Controlling for Fama and French Fama, E.F., & French, K. 1993. Common Risk Factors in the Returns on Stock and Bonds. Journal of Financial Economics 33, 3–56] risk factors, our results suggest that IPOs with affiliated VCs in general, and particularly those affiliated with more prestigious underwriters, have a higher long-term abnormal return than both non-affiliated and non-VC-backed IPOs. Our analysis of IPO performance indicates that more prestigious underwriters enhance effective screening, certification and monitoring roles of affiliated VCs. |
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