Bridge Building in Venture Capital-Backed Acquisitions
Paul A. Gompers
Harvard Business School - Finance Unit; Harvard University - Entrepreneurial Management Unit; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)
University of Illinois at Urbana-Champaign - Department of Finance
February 1, 2009
AFA 2009 San Francisco Meetings Paper
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.
Number of Pages in PDF File: 46
Keywords: Venture capital, mergers and acquisitions, private companies
JEL Classification: G24, G34
Date posted: March 7, 2008 ; Last revised: March 16, 2009
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