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Venture Capital Funds and Post-IPO Performance in Booms and Busts: Evidence from Israeli IPO’s in the US in the 1990s1

Author

Listed:
  • Hedva Ber

    (Bank of Israel)

  • Yishay Yafeh

    (The Hebrew University of Jerusalem and the University of Montreal)

Abstract

This paper evaluates the ability of VC funds to identify and bring to market successful high-tech Israeli companies during the period 1991 to 2000. Using a newly constructed and highly detailed database we find that: (1) According to stock returns and other measures, the post-IPO performance of VC-backed companies did not differ from that of non-VC companies, throughout the 1990s. Furthermore, we show that the entire distributions of stock returns among VC-backed and other firms are identical. (2) The probability of survival until the IPO stage was higher for VC-backed companies. We interpret this as evidence that an important contribution of VC funds may be in increasing the survival rates of young technology-intensive firms, rather than in identifying high performers.

Suggested Citation

  • Hedva Ber & Yishay Yafeh, 2003. "Venture Capital Funds and Post-IPO Performance in Booms and Busts: Evidence from Israeli IPO’s in the US in the 1990s1," Bank of Israel Working Papers 2003.12, Bank of Israel.
    • Handle: RePEc:boi:wpaper:2003.12
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    References listed on IDEAS

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    1. Mayer, Colin & Yafeh, Yishay & Schoors, Koen, 2002. "Sources of Funds and Investment Activities of Venture Capital Funds: Evidence from Germany, Israel, Japan and the UK," CEPR Discussion Papers 3340, C.E.P.R. Discussion Papers.
    2. Brav, Alon & Gompers, Paul A, 1997. "Myth or Reality? The Long-Run Underperformance of Initial Public Offerings: Evidence from Venture and Nonventure Capital-Backed Companies," Journal of Finance, American Finance Association, vol. 52(5), pages 1791-1821, December.
    3. Blass, Asher & Yafeh, Yishay, 2001. "Vagabond shoes longing to stray: Why foreign firms list in the United States," Journal of Banking & Finance, Elsevier, vol. 25(3), pages 555-572, March.
    4. Engel, Dirk & Keilbach, Max, 2007. "Firm-level implications of early stage venture capital investment -- An empirical investigation," Journal of Empirical Finance, Elsevier, vol. 14(2), pages 150-167, March.
    5. Hellmann, Thomas & Puri, Manju, 2000. "The Interaction between Product Market and Financing Strategy: The Role of Venture Capital," The Review of Financial Studies, Society for Financial Studies, vol. 13(4), pages 959-984.
    6. Thomas Hellmann, 1998. "The Allocation of Control Rights in Venture Capital Contracts," RAND Journal of Economics, The RAND Corporation, vol. 29(1), pages 57-76, Spring.
    7. Ritter, Jay R, 1991. "The Long-run Performance of Initial Public Offerings," Journal of Finance, American Finance Association, vol. 46(1), pages 3-27, March.
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    Cited by:

    1. Iftekhar Hasan & Maya Waisman, 2012. "Foreign IPOs: The Experience of Israeli Firms," Chapters, in: Kern Alexander & Rahul Dhumale (ed.), Research Handbook on International Financial Regulation, chapter 17, Edward Elgar Publishing.

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    More about this item

    Keywords

    Venture capital; IPO; survival rate; long run underperformance;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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