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

83 Pages Posted: 24 Jan 2017 Last revised: 22 Jul 2020

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

Texas Tech University, Rawls College of Business

Dexin Zhou

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

Date Written: April 3, 2020

Abstract

We investigate the effect of the pre-IPO investments by public market institu-tional investors (institutions) 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 institu-tions facilitate VC exits in the secondary market. Supporting this view, our analysis of insider trading reveals that the presence of institutions allows VCs to exit with reduced price impact in the secondary market. Consistent with the ease of exit, VCs offer fewer shares at the IPO and are more likely to invest in institution-backed startups.

Keywords: Public Market Institutional Investors, Venture Capitalists, IPO Under-pricing, VC Exits

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 (April 3, 2020). 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

Texas Tech University, Rawls College of Business ( email )

2500 Broadway
Lubbock, TX 79409
United States

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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