Bridge Building in Venture Capital-Backed Acquisitions
46 Pages Posted: 7 Mar 2008 Last revised: 16 Mar 2009
Date Written: February 1, 2009
We study the role of common venture capital investors in alleviating asymmetric information between public acquirers and private venture capital-backed targets. We find that acquisition announcement returns are more positive for acquisitions in which both the target and the acquirer are financed by the same venture capital firm. Similarly, having a common investor increases the likelihood that a transaction will be all equity-financed and the likelihood that an acquisition will take place. Our results suggest that common venture capital investors can form a bridge between acquiring and target firms that reduces asymmetric information associated with the transaction for both parties.
Keywords: Venture capital, mergers and acquisitions, private companies
JEL Classification: G24, G34
Suggested Citation: Suggested Citation