Abstract

http://ssrn.com/abstract=559105
 
 

References (58)



 
 

Citations (20)



 


 



Venture Capital Investments by IPO Underwriters: Certification, Alignment of Interest or Moral Hazard?


Xi Li


Hong Kong University of Science & Technology

Ronald W. Masulis


University of New South Wales - Australian School of Business; European Corporate Governance Institute (ECGI); Financial Research Network (FIRN)

December 21, 2004


Abstract:     
We study IPO pricing when underwriters are venture capital investors in issuers and test three hypotheses concerning the effects of underwriter share ownership on the IPO underwriting and pricing processes. We find that venture investments by underwriters significantly reduce IPO underpricing; and the result is stronger for lead underwriters. This evidence is consistent with both underwriter certification and improved underwriter alignment of interests with issuers. The fall in underpricing is substantially greater when there is greater uncertainty about IPO valuation, which further supports the underwriter certification effect. Controlling for endogeneity effects does not change our conclusions. Finally, lead underwriter venture investment in IPO issuers also reduces underwriter gross spreads. Overall, the evidence is consistent with an underwriter certification effect and to a lesser degree an underwriter-issuer alignment of interest effect and inconsistent with an IPO conflict of interest effect.

Number of Pages in PDF File: 44

working papers series





Download This Paper

Date posted: June 28, 2004  

Suggested Citation

Li, Xi and Masulis, Ronald W., Venture Capital Investments by IPO Underwriters: Certification, Alignment of Interest or Moral Hazard? (December 21, 2004). Available at SSRN: http://ssrn.com/abstract=559105 or http://dx.doi.org/10.2139/ssrn.559105

Contact Information

Xi Li
Hong Kong University of Science & Technology ( email )
Clearwater Bay
Kowloon
Hong Kong
Ronald W. Masulis (Contact Author)
University of New South Wales - Australian School of Business ( email )
Sydney, NSW 2052
Australia
612-9385-5860 (Phone)
612-9385-6347 (Fax)

European Corporate Governance Institute (ECGI) ( email )
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
Financial Research Network (FIRN)
C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia
HOME PAGE: http://www.firn.org.au

Feedback to SSRN


Paper statistics
Abstract Views: 5,651
Downloads: 1,306
Download Rank: 7,581
References:  58
Citations:  20

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo2 in 0.344 seconds