Initial Underpricing and Long-Run Performance of French Venture Capital-Backed and Non-Venture Capital-Backed IPOs

Abstract

We empirically examine the effects of venture capital (VC) firms on VC backed listed companies in French Nouveau Marché and Second Marché between 1991 and 2004. While studies in the US market shown a lower underpricing and a better long run performance for VC backed firms, we find that the effects of venture capitalist’s participation are more complicated. VC-backed firms are less underpriced than non VC-backed firms. Such result supports the certification model. However, in the long run, participation of VC firms has negative effect on performance of initial public offerings supporting the adverse selection and the opportunist behavior (grandstanding) models that younger VC firms bring their portfolios to the market prematurely.

Keywords: Venture capital, Initial public offering, Underpricing, Long-run performance, France