Earnings Growth and Underpricing with Venture Capitalist Backed Initial Public Offerings
21 Pages Posted: 29 Nov 2006
Date Written: March 1, 2007
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
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