Can VCs Time the Market? An Analysis of Exit Choice for Venture-Backed Firms
Eric R. Ball
Oracle Corporation; Claremont Graduate University Drucker-Ito School of Management
California State University, Northridge
Richard L. Smith
University of California, Riverside - Anderson Graduate School of Management
April 4, 2011
We use a sample of 8163 venture-backed companies over three decades to test the competing hypotheses that levels and relative shares of IPO and M&A exits are affected by market timing, versus pseudo market timing that reflects market conditions. We find evidence of pseudo market timing. VC-backed issuers react to market or sector run-ups but do not predict downturns. We find no evidence that firm-specific market timing contributes to IPO or M&A waves. We also find that acquirers turn to acquisition when other opportunities are unattractive, and that the market may be slow to recognize that such opportunities are declining.
Number of Pages in PDF File: 44
Keywords: IPO, acquisition, market timing, pseudo market timing, venture capital
JEL Classification: G14, G24, G32, G34
Date posted: February 8, 2009 ; Last revised: April 12, 2011
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