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Are venture capital and buyout backed IPOs any different?

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  • Buchner, Axel
  • Mohamed, Abdulkadir
  • Wagner, Niklas

Abstract

This paper addresses differences in the long and short run performance of Initial Public Offerings (IPOs) that are either backed by venture capital or by buyout sponsors. We investigate both the operating and the stock market performance of a sample of 851 U.S. IPOs during 2000 to 2014. Our results reveal significant short and long run performance differences. IPOs backed by venture capital sponsors are significantly more underpriced in the short run. We suggest that this is due to higher levels of information asymmetry. In the long run, return on assets as well as operating margins suggest that buyout backed IPOs outperform those backed by venture capital. However, we do not find significant differences in the risk-adjusted market performance using the Fama-French model. This suggests that buyout backed companies’ post listing operating performance improvements are well contained in the initial listing prices. Our results are not driven by selection effects, i.e. they are not due to the fact that buyout funds select different portfolio companies as compared to venture capital funds.

Suggested Citation

  • Buchner, Axel & Mohamed, Abdulkadir & Wagner, Niklas, 2019. "Are venture capital and buyout backed IPOs any different?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 60(C), pages 39-49.
    • Handle: RePEc:eee:intfin:v:60:y:2019:i:c:p:39-49
    DOI: 10.1016/j.intfin.2018.12.002
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    Cited by:

    1. Lili Liu & Heng Jiang & Yonglin Zhang, 2023. "The impact of venture capital on Chinese SMEs’ sustainable development: a focus on early-stage and professional characteristics," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-11, December.
    2. Chun-Yueh Lin & Yi-Hsien Wang, 2021. "Evaluating the Optimal External Equity Financing Strategy and Critical Factors for the Startup of Lending Company in Taiwan: An Application of Expert Network Decision Model," Mathematics, MDPI, vol. 9(18), pages 1-15, September.

    More about this item

    Keywords

    Private equity; Buyout; Venture capital; Initial public offerings;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • 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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