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

Shiyang Huang, Yifei Mao, Cong Wang, Dexin Zhou

Research output: Contribution to journalReview articlepeer-review

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.

Original languageEnglish
Pages (from-to)2411-2447
Number of pages37
JournalReview of Financial Studies
Volume34
Issue number5
DOIs
StatePublished - May 1 2021

Keywords

  • G23
  • G24
  • L13

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