Insider Reputation and Selling Decisions: The Unwinding of Venture Capital Investments During Equity Ipos

41 Pages Posted: 1 Feb 1997

See all articles by Timothy H. Lin

Timothy H. Lin

National Chung Cheng University - Department of Finance

Richard L. Smith

University of California, Riverside - Anderson Graduate School of Management

Date Written: September 1995

Abstract

Using data on selling by venture capitalists during the IPOs of their portfolio companies, we examine the relation between insider selling decisions and reputation. We hypothesize that, in deciding whether to sell, venture capitalists balance the costs of continued entrepreneurial involvement against the adverse reaction to insider selling, and that they facilitate unwinding of investment positions by developing reputations for not selling overpriced shares. Evidence on the timing of IPOs and selling decisions of venture capitalists confirms the importance of reputation as a determinant of the organization of the venture capital market and as a factor affecting insider selling decisions.

JEL Classification: D82, G20, L14

Suggested Citation

Lin, Timothy H. and Smith, Richard L., Insider Reputation and Selling Decisions: The Unwinding of Venture Capital Investments During Equity Ipos (September 1995). Available at SSRN: https://ssrn.com/abstract=1873 or http://dx.doi.org/10.2139/ssrn.1873

Timothy H. Lin

National Chung Cheng University - Department of Finance

Chia-Yi, Taiwan 621
China

Richard L. Smith (Contact Author)

University of California, Riverside - Anderson Graduate School of Management ( email )

Riverside, CA 92521
United States
951-827-3554 (Phone)

HOME PAGE: http://www.agsm.ucr.edu/

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