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The Role of Venture Capital Syndication in Value Creation for Entrepreneurial Firms

Review of Finance, Forthcoming

46 Pages Posted: 26 Mar 2008 Last revised: 14 May 2014

Xuan Tian

Tsinghua University - PBC School of Finance

Date Written: May 19, 2010

Abstract

This paper provides evidence that venture capital (VC) syndication creates value for entrepreneurial firms in two dimensions. First, VC syndication creates product market value for their portfolio firms. Specifically, VC syndicates invest significant amounts in younger firms, in earlier financing rounds, and in early stage firms. Further, VC syndicates nurture innovation of their portfolio firms and help them achieve better post-IPO operating performance. Second, VC syndication creates financial market value for their portfolio firms. Specifically, VC syndicate-backed firms are more likely to have a successful exit, enjoy a lower initial public offering (IPO) underpricing, and receive a higher IPO market valuation. The findings are robust to a variety of alternative syndication measures, subsamples, econometric models, and controlling for endogeneity in VC syndication.

Keywords: Venture Capital, Syndication, Value Creation, Firm Performance

JEL Classification: G24, G23, O31

Suggested Citation

Tian, Xuan, The Role of Venture Capital Syndication in Value Creation for Entrepreneurial Firms (May 19, 2010). Review of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=954188

Xuan Tian (Contact Author)

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengfu Road
Haidian District
Beijing 100083
China
+86-10-62794103 (Phone)

HOME PAGE: http://xuantian.info/

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