Venture capitalist quality and IPO certification

Steven D. Dolvin and Mark K. Pyles

Venture Capital, 2006, vol. 8, issue 4, 353-371

Abstract: The opportunity cost of going public is directly related to the level of information asymmetry associated with the issuing firm. Independent third parties, such as underwriters and venture capitalists, are believed to mitigate this asymmetry through certification, thereby reducing this cost. Existing studies illustrate that higher quality underwriters provide increased certification value; however, current research is essentially mute with regard to the effect of venture capitalist quality. We fill this gap, finding that higher quality venture capitalists also provide incremental certification value relative to those of lower quality. Additionally, we suggest that the most appropriate measure of venture capitalist quality is a simple binary variable that captures prior experience as the lead of an IPO venture capital syndicate.

Date: 2006
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DOI: 10.1080/13691060600759782

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