Exit timing of venture capitalists in the course of an initial public offering

We analyze the desinvestment decision of venture capitalists in the course of an IPO of their portfolio firms. The capital market learns of the project quality only in the period following the IPO. Venture capitalists wi
We analyze the desinvestment decision of venture capitalists in the course of an IPO of their portfolio firms. The capital market learns of the project quality only in the period following the IPO. Venture capitalists with high-quality firms face a trade-off between immediately selling their stake in the venture at a price below the true value and having to wait until the true value is revealed. We show that the dilemma may be resolved via a reputation-acquiring mechanism in a repeated game set-up. Thereby, we can explain, e.g., the advent of "hot-issue market behavior" involving early disinvestments and a high degree of price uncertainty. Furthermore, we provide a new rationale for underpricing. Young venture capitalists may use underpricing as a device for credibly committing themselves to acquiring reputation.
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Metadaten
Author:Werner Neus, Uwe Walz
URN:urn:nbn:de:hebis:30-9972
Parent Title (German):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2002,07
Series (Serial Number):CFS working paper series (2002, 07)
Document Type:Working Paper
Language:English
Year of Completion:2002
Year of first Publication:2002
Publishing Institution:Univ.-Bibliothek Frankfurt am Main
Release Date:2005/06/13
Tag:Exit Decisions ; IPO ; Underpricing; Venture Capital
SWD-Keyword:Börsenzulassung; Desinvestition; Emissionskurs; Going Public; Risikokapital; Terminplanung; Unendliches Spiel; Wertpapieremission
Pagenumber:49
HeBIS PPN:202717534
Institutes:Center for Financial Studies (CFS)
Dewey Decimal Classification:330 Wirtschaft
JEL-Classification:D82 Asymmetric and Private Information
G14 Information and Market Efficiency; Event Studies
G24 Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies (Updated!)
Sammlungen:Universitätspublikationen
Licence (German):License Logo Veröffentlichungsvertrag für Publikationen

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