Public Market Players in the Private World: Implications for the Going-Public Process
59 Pages Posted: 24 Jan 2017 Last revised: 9 Nov 2018
Date Written: November 8, 2018
Recent years have seen a dramatic increase in investment by public market institutional investors in the private market. We study the economic consequences of these investments for the initial public offerings of startups. We find that institutions' pre-IPO participation is associated with lower IPO underpricing for VC-backed startups. Our further analysis shows that the reduction in IPO underpricing does not appear to be driven by endogenous matching between startups and institutions. We explore the underlying economic mechanisms, and our results are consistent with a substitution effect between institutions and all-star analysts.
Keywords: IPO Underpricing, Venture Capital, Institutions
JEL Classification: G23; G24; L13
Suggested Citation: Suggested Citation