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

Shiyang Huang; Yifei Mao; Cong Wang; Dexin Zhou

doi:10.1093/rfs/hhaa092

Review of Financial Studies Vol. 34 No. 5 2021

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

Shiyang Huang¹; Yifei Mao²; Cong Wang³; Dexin Zhou⁴

¹ Faculty of Business and Economics (HKU Business School), The University of Hong Kong · ² School of Hotel Administration, SC Johnson College of Business, Cornell University · ³ Texas Tech University · ⁴ Baruch College

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.

DOI: 10.1093/rfs/hhaa092
Volume: 34
Issue: 5
Pages: 2411-2447
Language: en
Sources: bibtex:phds-export.bib openalex crossref

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

Abstract

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