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Pre-IPO growth, venture capital, and the long-run performance of IPOs

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  • Que, Jiangjing
  • Zhang, Xueyong

Abstract

This paper analyzes the relationship between pre-IPO growth and the post-IPO long-run performance for venture capital (VC)-backed firms. Our results show that the effect of pre-IPO growth on post-IPO long-run performance is positive, but is attenuated by venture capital in a matched sample. Focusing on VC-backed IPO firms, we find an inverted-U relationship between pre-IPO growth and post-IPO long-run performance. In addition, our baseline results continue to hold in a variety of settings, including post-IPO profitability performance and ownership divisions of venture capital. We explore one underlying interpretation through which post-IPO long-run performance exhibits a reversal when pre-IPO growth increases to a saturation point: VC-backed firms tend to engage in accounting fraud due to the incentives from some opportunistic VCs to take firms public earlier.

Suggested Citation

  • Que, Jiangjing & Zhang, Xueyong, 2019. "Pre-IPO growth, venture capital, and the long-run performance of IPOs," Economic Modelling, Elsevier, vol. 81(C), pages 205-216.
    • Handle: RePEc:eee:ecmode:v:81:y:2019:i:c:p:205-216
    DOI: 10.1016/j.econmod.2019.04.005
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    2. Mumtaz, Muhammad Zubair & Yoshino, Naoyuki, 2021. "Greenness index: IPO performance and portfolio allocation," Research in International Business and Finance, Elsevier, vol. 57(C).
    3. Colak, Gonul & Fu, Mengchuan & Hasan, Iftekhar, 2022. "On modeling IPO failure risk," Economic Modelling, Elsevier, vol. 109(C).
    4. Hai Long & Jianzhi Zhao & Xiaochen Lin & Lanyong Liu, 2022. "Does Venture Capital Reputation Contribute to Pre-IPO Performance of Entrepreneurial Firms in the Chinese Context?," SAGE Open, , vol. 12(4), pages 21582440221, November.
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    6. Li, Jing & Li, Nan & Xia, Tongshui & Guo, Jinjin, 2023. "Textual analysis and detection of financial fraud: Evidence from Chinese manufacturing firms," Economic Modelling, Elsevier, vol. 126(C).

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    More about this item

    Keywords

    Post-IPO long-run performance; Venture capital; Pre-IPO growth;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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