Public Market Players in the Private World: Implications for the Going-Public Process

Robust financial contracting and the role of venture capitalists

Shiyang Huang, Yifei Mao, Cong (Roman) Wang and Dexin Zhou

The Review of Financial Studies, 2021, vol. 34, issue 5, 2411-2447

Abstract: We investigate the effect of pre-IPO investments by public market institutional investors (institutions) on the exit of venture capitalists (VCs). Results indicate that institutions’ pre-IPO investments reduce IPO underpricing by mitigating VCs’ reliance on all-star analysts to boost market liquidity. We conclude that institutions facilitate VC exits in the secondary market. Supporting this view, our analysis reveals that the presence of institutions allows VCs to exit with a reduced price impact in the secondary market. Consistent with the ease of exit, VCs offer fewer shares at the IPO and are more likely to invest in institutionally backed startups.

JEL-codes: G23 G24 L13 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (9)

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