Earnings Growth and Underpricing with Venture Capitalist Backed Initial Public Offerings

21 Pages Posted: 29 Nov 2006

See all articles by Elke J.E. Klaassen

Elke J.E. Klaassen

University of Groningen

J. Henk von Eije

University of Groningen - Faculty of Economics and Business

Date Written: March 1, 2007

Abstract

The literature on the certification role of venture capitalists in initial public offerings (IPOs) is mixed and quite often no significant effect is found. Similarly, we find no significant effect of venture capitalists on IPO-underpricing in The Netherlands, if we study the impact of venture capitalists on all IPOs. However, underpricing is affected positively in venture capital backed companies that exhibit large net earnings growth and negatively in venture capital backed companies that exhibit small net earnings growth. The large underpricing of large net earnings growth companies suggests that informed insiders are not impressed by past net earnings of venture capital backed IPOs, but that past net earnings growth attracts less informed investors to bid fiercely for the shares after the IPO.

Keywords: Underpricing, Venture Capital Backed IPOs, Earnings Growth, Earnings Growth Management

JEL Classification: G24

Suggested Citation

Klaassen, Elke J.E. and von Eije, J. Henk, Earnings Growth and Underpricing with Venture Capitalist Backed Initial Public Offerings (March 1, 2007). Available at SSRN: https://ssrn.com/abstract=945587 or http://dx.doi.org/10.2139/ssrn.945587

Elke J.E. Klaassen

University of Groningen ( email )

P.O. Box 800
9700 AH Groningen, Groningen 9700 AV
Netherlands

J. Henk Von Eije (Contact Author)

University of Groningen - Faculty of Economics and Business ( email )

Postbus 72
9700 AB Groningen
Netherlands

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