Venture-backed IPOs - grandstanding and clusterings

Kevin Berg Grell (kgr@sam.sdu.dk)
Additional contact information
Kevin Berg Grell: Department of Business and Economics, Postal: University of Southern Denmark, Campusvej 55, DK-5230 Odense M, Denmark

No 4/2010, Discussion Papers on Economics from University of Southern Denmark, Department of Economics

Abstract: The previous theoretical literature on IPOs has been carried out under the assumption of a free supply of new issues, emphasizing how the valuation and magnitude of new issues can be explained by mechanisms on the demand side. This model explains grandstanding and IPO clusterings based on supply side dynamics and adverse selection between venture capitalists and their investors. We derive the optimal divestment pattern of venture capitalists in the process of gaining reputation. From this we show how grandstanding and IPO clusterings are linked to financial constraints, and how competition for funding strengthens this result. Finally, we argue that the social loss in this context has three major components. Besides under- and overinvestment in new funds, some companies are divested too soon, in order for venture capitalists to signal good ability of project selection.

Keywords: Venture capital; VC-backed IPOs; grandstanding (search for similar items in EconPapers)
JEL-codes: D81 D82 G24 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2010-09-24
New Economics Papers: this item is included in nep-cfn and nep-ent
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.sdu.dk/-/media/files/om_sdu/institutte ... _2010/dpbe4_2010.pdf Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hhs:sdueko:2010_004

Access Statistics for this paper

More papers in Discussion Papers on Economics from University of Southern Denmark, Department of Economics Department of Economics, University of Southern Denmark, Campusvej 55, DK-5230 Odense M, Denmark. Contact information at EDIRC.
Bibliographic data for series maintained by Astrid Holm Nielsen (astni@sam.sdu.dk).