Top VC IPO underpricing

Daniel Bradley, Incheol Kim and Laurie Krigman

Journal of Corporate Finance, 2015, vol. 31, issue C, 186-202

Abstract: Before the IPO bubble burst, the first day return for IPOs backed by top VC firms was double that of non-top VC IPOs. Top VC IPOs were also twice as likely to receive all-star analyst coverage and suffered twice as large negative returns upon lockup expiration. We argue that this was not a coincidence. Underwriters benefited from underpricing vis-à-vis allocation strategies whereas VCs gain from information momentum which allows them to cash-out at higher prices at lockup expiration. All-stars are a scarce resource underwriters allocate to their best clients (top VCs) who bring them repeat business. Post-bubble, regulatory shocks restricted preferential IPO allocations and reduced the value of all-star coverage. Consequently, these relations disappeared indicating that regulatory changes likely had the desired effect.

Keywords: Initial public offering; All-star analyst coverage; Venture capital; Underpricing (search for similar items in EconPapers)
JEL-codes: G14 G24 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:31:y:2015:i:c:p:186-202

DOI: 10.1016/j.jcorpfin.2015.01.016

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