Does venture capital syndication affect mergers and acquisitions? |
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| Institution: | 1. School of Management, Xi''an Jiaotong University, China;2. Shanghai University of International Business and Economics, China;3. Postal Savings Bank of China, Shaanxi Branch;1. Graduate school of Economics, Waseda University, Tokyo, Japan;2. Department of Economics, Chinese University of Hong Kong, Shatin, Hong Kong;1. University of Hohenheim, Wollgrasweg 49, 70599 Stuttgart, Germany;2. Swiss Institute of Banking and Finance (s/bf-HSG), University of St. Gallen, Unterer Graben 21, 9000 St. Gallen, Switzerland;1. Manchester Business School, University of Manchester, Manchester, UK;2. School of Management, University of Liverpool, Liverpool, UK |
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| Abstract: | We find that venture capital (VC) syndicate-backed targets receive higher acquisition premiums and spend more time negotiating transaction terms. The acquirers of syndicate-backed targets receive lower cumulative abnormal returns surrounding the acquisition announcement, but they outperform the individual-backed targets in the long-term. We show that VC syndication creates value for entrepreneurial firms by leading to larger and more independent boards of directors prior to acquisition. It also leads to better incentive alignment between the CEO and the shareholders of the acquiring firm. In addition, syndicate-backed targets prefer stock as the method of payment in mergers and acquisitions. Collectively, we show that VC syndication creates value for both entrepreneurial firms and their acquirers in the long-term. |
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