Venture Capitalist Monitoring: Evidence from Governance Structures
Terry L. Campbell II
University of Delaware - Department of Finance
Melissa B. Frye
University of Central Florida - College of Business Administration
We examine the impact of venture capitalist (VC) involvement, quality and exit on corporate governance structures at the time of and subsequent to an initial public offering (IPO). Venture capital backed firms utilize governance structures with greater levels of monitoring at the time of an IPO compared to non-backed firms, but this difference begins to dissipate over time. While short-lived, IPOs backed by high quality VCs have greater overall monitoring levels than those IPOs backed by low quality VCs. IPOs backed by high quality VCs use significantly more equity-based compensation than their low quality counterparts. Finally, the exit of a VC materially alters the governance structure of firms. Measures of governance decline following the departure of a venture capital firm. Overall, the presence of a venture capitalist affects governance structures of firms both at the IPO and through the early years as public firms.
Number of Pages in PDF File: 32
Keywords: Venture capital, corporate governance, initial public offerings
JEL Classification: G30, G24
Date posted: May 9, 2008
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