Bridge Building in Venture Capital-Backed Acquisitions

46 Pages Posted: 7 Mar 2008 Last revised: 16 Mar 2009

Paul A. Gompers

Harvard Business School - Finance Unit; Harvard University - Entrepreneurial Management Unit; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Yuhai Xuan

University of Illinois at Urbana-Champaign - Department of Finance

Date Written: February 1, 2009

Abstract

We study the role of common venture capital investors in alleviating asymmetric information between public acquirers and private venture capital-backed targets. We find that acquisition announcement returns are more positive for acquisitions in which both the target and the acquirer are financed by the same venture capital firm. Similarly, having a common investor increases the likelihood that a transaction will be all equity-financed and the likelihood that an acquisition will take place. Our results suggest that common venture capital investors can form a bridge between acquiring and target firms that reduces asymmetric information associated with the transaction for both parties.

Keywords: Venture capital, mergers and acquisitions, private companies

JEL Classification: G24, G34

Suggested Citation

Gompers, Paul A. and Xuan, Yuhai, Bridge Building in Venture Capital-Backed Acquisitions (February 1, 2009). AFA 2009 San Francisco Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1102504 or http://dx.doi.org/10.2139/ssrn.1102504

Paul A. Gompers

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
617-495-6297 (Phone)
617-496-8443 (Fax)

Harvard University - Entrepreneurial Management Unit ( email )

Cambridge, MA 02163
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Yuhai Xuan (Contact Author)

University of Illinois at Urbana-Champaign - Department of Finance ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

HOME PAGE: http://www.business.illinois.edu/yhxuan/

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