Venture Capital and Corporate Governance in the Newly Public Firm

Yael V. Hochberg

Review of Finance, 2011, vol. 16, issue 2, 429-480

Abstract: I examine the effects of venture capital backing on the corporate governance of the entrepreneurial firm at the time of transition from private to public ownership. Using a selection model framework that instruments for venture backing with variations in the supply of venture capital, I conduct three sets of tests comparing corporate governance in venture- and non--venture-backed initial public offering (IPO) firms. Venture-backed firms have lower levels of earnings management, more positive reactions to the adoption of shareholder rights agreements, and more independent board structures than similar non--venture-backed firms, consistent with better governance. These effects are not common to all pre-IPO large shareholders. Copyright 2011, Oxford University Press.

Date: 2011
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