Public Market Players in the Private World: Implications for the Going-Public Process

72 Pages Posted: 24 Jan 2017 Last revised: 30 Dec 2019

See all articles by Shiyang Huang

Shiyang Huang

The University of Hong Kong - Faculty of Business and Economics

Yifei Mao

Cornell University - SC Johnson College of Business - Finance Department

Cong (Roman) Wang

Goizueta Business School, Emory University

Dexin Zhou

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance

Date Written: December 30, 2019

Abstract

We investigate the effect of public market institutional investor (institution) ownership in startups on the exit of venture capitalists (VCs). We show that institutions' pre-IPO investments reduce IPO underpricing by mitigating VCs' reliance on all-star analysts in boosting market liquidity. We conclude that institutions facilitate secondary market exit of VCs. Supporting this view, an insider trading analysis reveals that the presence of institutions allows VCs to liquidate in the secondary market with reduced price impact. Consistent with the ease of exit, VCs offer fewer shares at the IPO stage and are more involved in the boards of the institution-backed startups.

Keywords: IPO Underpricing, Venture Capital, Institutions

JEL Classification: G23, G24, L13

Suggested Citation

Huang, Shiyang and Mao, Yifei and Wang, Cong (Roman) and Zhou, Dexin, Public Market Players in the Private World: Implications for the Going-Public Process (December 30, 2019). Available at SSRN: https://ssrn.com/abstract=2898548 or http://dx.doi.org/10.2139/ssrn.2898548

Shiyang Huang

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Yifei Mao

Cornell University - SC Johnson College of Business - Finance Department ( email )

Ithaca, NY 14850
United States

Cong (Roman) Wang

Goizueta Business School, Emory University ( email )

1300 Clifton Road
Atlanta, GA 30322-2722
United States

HOME PAGE: http://www.congromanwang.com

Dexin Zhou (Contact Author)

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance ( email )

55 Lexington Avenue
New York, NY 10010
United States

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