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Outside Insiders: Does Access to Information Prior to an IPO Generate a Trading Advantage After the IPO?

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  • Ozmel, Umit
  • Trombley, Timothy E.
  • Yavuz, M. Deniz

Abstract

We investigate whether access to information prior to an initial public offering (IPO) generates a trading advantage after the IPO. We find that limited partners (LPs) of lead venture capital funds obtain high returns when they invest in newly listed stocks backed by their funds. These returns are not explained by LPs’ differing stock-picking abilities, and they are higher when LPs’ information advantage over the public is higher. LPs are more likely to invest if they have an information advantage, and access to information eliminates the familiarity bias that they display otherwise.

Suggested Citation

  • Ozmel, Umit & Trombley, Timothy E. & Yavuz, M. Deniz, 2019. "Outside Insiders: Does Access to Information Prior to an IPO Generate a Trading Advantage After the IPO?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 54(1), pages 303-334, February.
    • Handle: RePEc:cup:jfinqa:v:54:y:2019:i:01:p:303-334_00
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    Citations

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    Cited by:

    1. Douglas Cumming & Satish Kumar & Weng Marc Lim & Nitesh Pandey, 2023. "Mapping the venture capital and private equity research: a bibliometric review and future research agenda," Small Business Economics, Springer, vol. 61(1), pages 173-221, June.
    2. Lahr, Henry & Trombley, Timothy E., 2020. "Early indicators of fundraising success by venture capital firms," Journal of Corporate Finance, Elsevier, vol. 65(C).
    3. Pedersen, David J., 2021. "Do business ties generate private information? Evidence from institutional trading around M&A announcements," Finance Research Letters, Elsevier, vol. 38(C).
    4. Peter Iliev & Michelle Lowry, 2020. "Venturing beyond the IPO: Financing of Newly Public Firms by Venture Capitalists," Journal of Finance, American Finance Association, vol. 75(3), pages 1527-1577, June.
    5. Wang, Jiaxin & Cheng, Ruonan & Huang, Yong & Yan, Chao, 2023. "The pre-IPO dividend and IPO underpricing: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 82(C).
    6. Umit Ozmel & Deniz Yavuz & Tim Trombley & Ranjay Gulati, 2020. "Interfirm Ties Between Ventures and Limited Partners of Venture Capital Funds: Performance Effects in Financial Markets," Organization Science, INFORMS, vol. 31(3), pages 698-719, May.

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