Long‐term Performance of New Equity Issuers, Venture Capital and Reputation of Investment Bankers

This study investigates the potential effects of investment‐banking reputation and venture capital on the long‐term performance of initial public offerings (IPOs) simultaneously. Our findings do not support the view that IPOs perform differently compared with other firms, with the only exception of venture‐backed IPOs. We show that venture‐backed IPOs are associated with long‐term gains when we account for investment bankers' reputation, size and book‐to‐market effects. Zero investment portfolios, based on combinations of underwriter's reputation and venture capital involvement's in IPOs, provide additional evidence in support of the view that venture‐backed IPOs, regardless of the reputation of underwriters, are associated with significant post‐issue gains. Our results also indicate that the reputation of investment bankers matters only in the absence of venture capital .