Do Venture Capital Investors Learn from Public Markets?

51 Pages Posted: 19 May 2016 Last revised: 7 May 2021

See all articles by Bibo Liu

Bibo Liu

Tsinghua University - PBC School of Finance

Xuan Tian

Tsinghua University - PBC School of Finance

Date Written: May 7, 2021

Abstract

We examine whether venture capital (VC) investors learn information contained in public market stock prices. VCs are less likely to stage finance startups and syndicate with other VCs when stock prices are more informative. An instrumental variable approach suggests that the relation is likely causal. The startup’s IPO prospect is the plausible information contained in stock prices learnt by VCs. The effect of VC learning on staging and syndication is more pronounced when collecting information is more costly and the information they learn is more reliable. Evidence from a survey to VC investors confirms that they actively learn information from the public market. VCs’ learning from the public market significantly affects their investments across startup firms. Our paper sheds new light on the real effects of financial markets and suggests that the informational role of security prices is much broader than what we have thought.

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? (May 7, 2021). PBCSF-NIFR Research Paper, 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 )

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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