Abstract

http://ssrn.com/abstract=891571
 
 

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Venture Capital Conflicts of Interest: Evidence from Acquisitions of Venture Backed Firms


Ronald W. Masulis


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

Rajarishi Nahata


City University of New York, CUNY Baruch College - Zicklin School of Business - Department of Economics and Finance

July 6, 2009

Journal of Financial and Quantitative Analysis (JFQA), 2011 (46), 395-430

Abstract:     
We analyze the effects of venture capital (VC) backing on profitability of private firm acquisitions. We find VC backing leads to significantly higher acquirer announcement returns, averaging 3 percent, even after controlling for deal characteristics and endogeneity in venture funding. This leads us to investigate whether some VCs have interests which conflict with other investors. We show that such conflicts arise from VCs having financial relationships with both acquirers and targets, corporate VCs having a dominant strategic focus, and VC funds nearing maturity experiencing pressure to liquidate. Our conclusions follow from examinations of target takeover premia and acquirer announcement returns.

Number of Pages in PDF File: 46

Keywords: Acquisitions, M&A, Venture Capital, Conflicts of Interest, Moral Hazard

JEL Classification: G34, G24

Accepted Paper Series


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Date posted: March 29, 2007 ; Last revised: January 15, 2013

Suggested Citation

Masulis, Ronald W. and Nahata, Rajarishi, Venture Capital Conflicts of Interest: Evidence from Acquisitions of Venture Backed Firms (July 6, 2009). Journal of Financial and Quantitative Analysis (JFQA), 2011 (46), 395-430. Available at SSRN: http://ssrn.com/abstract=891571

Contact Information

Ronald W. Masulis
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

Rajarishi Nahata (Contact Author)
City University of New York, CUNY Baruch College - Zicklin School of Business - Department of Economics and Finance ( email )
17 Lexington Avenue
New York, NY 10010
United States
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