Abstract and Keywords
The reputations of venture capital firms that operate in a highly fragmented private equity industry are examined in several recent studies, and this evidence is further developed in this article. The relations of a large number of suggested venture capitalist (VC) reputation measures to the probability of future successful initial public offers (IPOs) are analyzed, as well as four well-known measures of firm long-run performance: the rate of return on assets, market-to-book ratio, firm survival, and abnormal stock return. The primary finding is that a VC's past market share of VC-backed IPOs consistently shows a significant positive relation with the probability of future IPOs as well as with all four post-IPO issuer long-run performance measures investigated. This result holds after controlling for VC backing, VC banks, underwriter reputation, and issue and issuer characteristics. There is also evidence that more reputable VCs select stronger portfolio firms. However, the relation of VC reputation to firm performance continues to hold after adjusting for self-selection using well-known approaches. Thus after taking VC selectivity into account, strong evidence is found that more reputable VCs do add value to their portfolio firms after they go public.
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