Patents, Innovation, and Performance of Venture Capital-backed IPOs

55 Pages Posted: 8 Dec 2013 Last revised: 17 Jan 2015

See all articles by Jerry Cao

Jerry Cao

Independent

Fuwei Jiang

Central University of Finance and Economics (CUFE)

Jay R. Ritter

University of Florida - Department of Finance, Insurance and Real Estate

Date Written: January 15, 2015

Abstract

We study the predictive power of patents on the long-run performance of venture capital (VC)-backed initial public offerings (IPOs). We show that VC-backed IPOs that have at least one patent at the time of the IPO substantially outperform other VC-backed IPOs, with 3-year buy-and-hold market-adjusted returns of -7.1% vs. -23.3%. On average, VC-backed IPOs without patents perform similarly to non-VC-backed IPOs. We also report that VC-backed IPOs from 1981-1998 outperformed other IPOs, but the pattern has reversed for IPOs from 1999-2006. Although a smaller proportion of non-VC-backed IPOs possess patents, those with patents also outperform those without patents.

Keywords: Initial public offerings, Venture capital, Patents, Innovation, Long-run performance

JEL Classification: G14, G24, G30

Suggested Citation

Cao, Jerry and Jiang, Fuwei and Ritter, Jay R., Patents, Innovation, and Performance of Venture Capital-backed IPOs (January 15, 2015). Available at SSRN: https://ssrn.com/abstract=2364668 or http://dx.doi.org/10.2139/ssrn.2364668

Jerry Cao

Independent

No Address Available

Fuwei Jiang

Central University of Finance and Economics (CUFE) ( email )

39 South College Road
Haidian District
Beijing, Beijing 100081
China

Jay R. Ritter (Contact Author)

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611
United States
(352) 846-2837 (Phone)
(352) 392-0301 (Fax)

HOME PAGE: http://bear.cba.ufl.edu/ritter

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