Long-Term Performance of New Equity Issuers, Venture Capital and Reputation of Investment Bankers

Abstract

This study investigates the potential effects of investment-banking reputation and venture capital on the long-term underperformance of IPOs simultaneously. Our findings do not support the view that IPOs perform differently than other firms, with the only exception of venture backed IPOs. We show that venture backed IPOs are associated with long-term gains when we account for investment bankers' reputation, size and book-to-market effects. Zero investment portfolios, based on combinations of underwriter reputation and venture capital involvement in IPOs, provide additional evidence in support of the view that venture backed IPOs, regardless of the reputation of underwriters, are associated with significant post-issue gains.

Keywords: Initial public offerings, long-term performance, venture capitalists, investment bank reputation

JEL Classification: G24