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A reverse takeover as an exit strategy of venture capital: Korean evidence

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  • Song, Kyojik “Roy”
  • Kim, Inho
  • Chang, Young K.

Abstract

We investigate the characteristics of firms that choose between three different methods, IPOs, sellouts, or reverse takeovers, to obtain exchange listings using Korean data over the period of 2000–2010. We document that VC-backed firms tend to choose reverse takeovers rather than IPOs or sellouts to go public after controlling for other determinants. We also find that VC-backed reverse takeover firms have higher leverage, lower profitability, and higher information asymmetry than VC-backed IPO firms. The results suggest that venture capital uses a reverse takeover as an alternative exit method from their portfolio firms since reverse takeovers constitute a fast and low-cost going-public mechanism. We then find that reverse takeover firms perform worse than IPO firms over the long term regardless of whether they are VC-backed or not.

Suggested Citation

  • Song, Kyojik “Roy” & Kim, Inho & Chang, Young K., 2014. "A reverse takeover as an exit strategy of venture capital: Korean evidence," Pacific-Basin Finance Journal, Elsevier, vol. 29(C), pages 182-198.
    • Handle: RePEc:eee:pacfin:v:29:y:2014:i:c:p:182-198
    DOI: 10.1016/j.pacfin.2014.04.003
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    Cited by:

    1. Cheng, Zijian & Liu, Zhangxin (Frank) & Wang, Isabel Zhe & Zhao, Xingju, 2024. "Reverse merger audit fee premium: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 94(C).
    2. Karen Benson & Martina K. Linnenluecke & David Morrison & Sviatoslav Rosov, 2020. "Death spiral PIPEs: a reconsideration of the evidence," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(4), pages 4175-4194, December.
    3. Apostolos Dasilas & Chris Grose & Michael A. Talias, 2017. "Investigating the valuation effects of reverse takeovers: evidence from Europe," Review of Quantitative Finance and Accounting, Springer, vol. 49(4), pages 973-1004, November.
    4. Hyunseok Kim & Jayoung Ko & Chulhee Jun & Kyojik “Roy” Song, 2021. "Going public through mergers with special purpose acquisition companies," International Review of Finance, International Review of Finance Ltd., vol. 21(3), pages 742-768, September.

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    More about this item

    Keywords

    Venture capital; Initial public offering; Mergers and acquisitions; Sellout; Reverse takeover;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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