Venture Capital Valuation, Partial Adjustment, and Underpricing: Behavioral Bias or Information Production?

Jan Jindra and Dima Leshchinskii

The Financial Review, 2015, vol. 50, issue 2, 173-219

Abstract: Using a sample of venture capital (VC)-backed initial public offerings (IPOs), we analyze the role played by perceived valuation changes on IPO underpricing. We find that perceived valuation change from the last pre-IPO VC round to the IPO affects IPO underpricing in a nonlinear way. Further analysis indicates that information-based theories, not behavioral biases, explain this nonlinearity. We also find that the previously documented partial adjustment effect and its nonlinear impact on IPO underpricing are related to the trajectory of the perceived valuation changes, which stands in stark contrast to prior evidence of the importance of behavioral biases.

Date: 2015
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