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Venture Capitalist Monitoring: Evidence from Governance Structures

32 Pages Posted: 9 May 2008  

Terry L. Campbell II

University of Delaware - Department of Finance

Melissa B. Frye

University of Central Florida - College of Business Administration

Multiple version iconThere are 2 versions of this paper

Date Written: May 2008

Abstract

We examine the impact of venture capitalist (VC) involvement, quality and exit on corporate governance structures at the time of and subsequent to an initial public offering (IPO). Venture capital backed firms utilize governance structures with greater levels of monitoring at the time of an IPO compared to non-backed firms, but this difference begins to dissipate over time. While short-lived, IPOs backed by high quality VCs have greater overall monitoring levels than those IPOs backed by low quality VCs. IPOs backed by high quality VCs use significantly more equity-based compensation than their low quality counterparts. Finally, the exit of a VC materially alters the governance structure of firms. Measures of governance decline following the departure of a venture capital firm. Overall, the presence of a venture capitalist affects governance structures of firms both at the IPO and through the early years as public firms.

Keywords: Venture capital, corporate governance, initial public offerings

JEL Classification: G30, G24

Suggested Citation

Campbell, Terry L. and Frye, Melissa B., Venture Capitalist Monitoring: Evidence from Governance Structures (May 2008). Available at SSRN: https://ssrn.com/abstract=1131305 or http://dx.doi.org/10.2139/ssrn.1131305

Terry Lee Campbell II

University of Delaware - Department of Finance ( email )

College of Business and Economics
Newark, DE 19716
United States

Melissa Frye (Contact Author)

University of Central Florida - College of Business Administration ( email )

P.O. Box 161400
Department of Finance
Orlando, FL 32816
United States
407-823-3097 (Phone)

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