The causal effect of venture capital backing on the underpricing of Italian IPOs

Pennacchio, Luca (2013): The causal effect of venture capital backing on the underpricing of Italian IPOs.

Abstract

This paper analyses the role of venture capitalists in Italian Initial Public Offerings (IPOs). Between 1999 and 2012 venture capital backed IPOs are on average less underpriced than non-venture backed IPOs. By using both a matching and a regression-based approach to account for the non-random distribution of venture financing across firms, I show that the underpricing difference is actually due to the causal effect of venture capital backing and that the raw comparison of the sample means underestimates such an effect. The result is consistent with the certification hypothesis, that is, certifying that the value of issuing firms reflects all relevant inside information, venture capital backing reduces the asymmetric information problem that arises in the IPO process.

• Item Type: MPRA Paper
• Language: English
• Keywords: Venture capital, IPOs, Certification Hypothesis, Underpricing
• Subjects: G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency ; Event Studies ; Insider Trading; G - Financial Economics > G2 - Financial Institutions and Services > G24 - Investment Banking ; Venture Capital ; Brokerage ; Ratings and Ratings Agencies; G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill

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