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Do Venture Capital Investors Learn from Public Markets?

61 Pages Posted: 19 May 2016 Last revised: 4 Sep 2017

Bibo Liu

Tsinghua University - PBC School of Finance; Tsinghua University - PBC School of Finance

Xuan Tian

Tsinghua University - PBC School of Finance

Date Written: July 26, 2017

Abstract

We examine whether venture capital (VC) investors learn information contained in public market stock prices. We find that, when public market prices are more informative, VCs are less likely to stage finance startups and syndicate with other VCs. This effect is more pronounced when VCs lack industry-specific expertise, VCs are physically distant from their ventures, and startups are less risky. We also find the sensitivity of VC investment to public market signals is higher when public market prices are more informative. Our paper sheds new light on the real effects of financial markets on capital formation in the private market.

Keywords: Learning; Venture capital; Staging; Syndication; Price informativeness

JEL Classification: G24, G18, G14

Suggested Citation

Liu, Bibo and Tian, Xuan, Do Venture Capital Investors Learn from Public Markets? (July 26, 2017). 29th Australasian Finance and Banking Conference 2016. Available at SSRN: https://ssrn.com/abstract=2780890 or http://dx.doi.org/10.2139/ssrn.2780890

Bibo Liu

Tsinghua University - PBC School of Finance ( email )

Beijing, Beijing 100084
China
86-10-62795701 (Phone)

Tsinghua University - PBC School of Finance

No. 43, Chengdu Road
Haidian District
Beijing 100083
China

Xuan Tian (Contact Author)

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengfu Road
Haidian District
Beijing 100083
China
+86-10-62794103 (Phone)

HOME PAGE: http://xuantian.info/

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