Venture Capital Backing, Investor Attention, and Initial Public Offerings
63 Pages Posted: 14 Oct 2016 Last revised: 4 Aug 2018
Date Written: July 30, 2018
We hypothesize that VC-backing garners greater “investor attention” (Merton (1987)) for IPOs, allowing IPO underwriters to perform two information-related roles more efficiently during the book-building and road-show process: information dissemination, where the lead underwriter disseminates noisy information about various aspects of the IPO firm to institutional investors; and information extraction, where the lead underwriter extracts information useful in pricing the IPO firm equity from institutional investors. Using pre-IPO media coverage as a proxy, we show empirically that VC-backed firm IPOs indeed obtain greater investor attention, causally yielding them more favorable IPO characteristics such as higher IPO and secondary market valuations.
Keywords: Initial Public Offerings, Investor Attention, Venture Capital
JEL Classification: G23, G24
Suggested Citation: Suggested Citation