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