Venture Capital and Corporate Governance in the Newly Public Firm
Review of Finance, Forthcoming
51 Pages Posted: 11 Dec 2003 Last revised: 6 Feb 2016
Date Written: September 6, 2011
I examine the effects of venture capital backing on the corporate governance of the entrepreneurial firm at the time of transition from private to public ownership. Using a selection model framework that instruments for venture backing with variations in the supply of venture capital, I conduct three sets of tests comparing corporate governance in venture- and non-venture-backed IPO firms. Venture-backed firms have lower levels of earnings management, more positive reactions to the adoption of shareholder rights agreements, and more independent board structures than similar non-venture-backed firms, consistent with better governance. These effects are not common to all pre-IPO large shareholders.
Keywords: Venture capital, corporate governance, initial public offering, earnings management, boards of directors
JEL Classification: G24, G34
Suggested Citation: Suggested Citation