Can VCs Time the Market? An Analysis of Exit Choice for Venture-Backed Firms

Ball, Eric R.; Chiu, Hsin-Hui; Smith, Richard L.

doi:10.2139/ssrn.1339426

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Can VCs Time the Market? An Analysis of Exit Choice for Venture-Backed Firms

44 Pages Posted: 8 Feb 2009 Last revised: 12 Apr 2011

See all articles by Eric R. Ball

Eric R. Ball

Claremont Graduate University Drucker-Ito School of Management

Richard L. Smith

University of California, Riverside - Anderson Graduate School of Management

There are 2 versions of this paper

Date Written: April 4, 2011

Abstract

We use a sample of 8163 venture-backed companies over three decades to test the competing hypotheses that levels and relative shares of IPO and M&A exits are affected by market timing, versus pseudo market timing that reflects market conditions. We find evidence of pseudo market timing. VC-backed issuers react to market or sector run-ups but do not predict downturns. We find no evidence that firm-specific market timing contributes to IPO or M&A waves. We also find that acquirers turn to acquisition when other opportunities are unattractive, and that the market may be slow to recognize that such opportunities are declining.

Keywords: IPO, acquisition, market timing, pseudo market timing, venture capital

JEL Classification: G14, G24, G32, G34

Suggested Citation: Suggested Citation

Ball, Eric R. and Chiu, Hsin-Hui and Smith, Richard L., Can VCs Time the Market? An Analysis of Exit Choice for Venture-Backed Firms (April 4, 2011). Available at SSRN: https://ssrn.com/abstract=1339426 or http://dx.doi.org/10.2139/ssrn.1339426