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Private EquityOpportunities and Risks$
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H. Kent Baker, Greg Filbeck, and Halil Kiymaz

Print publication date: 2015

Print ISBN-13: 9780199375875

Published to Oxford Scholarship Online: August 2015

DOI: 10.1093/acprof:oso/9780199375875.001.0001

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The Role of Private Equity in Initial Public Offerings

The Role of Private Equity in Initial Public Offerings

The Case of Venture Capital Firms

(p.200) 12 The Role of Private Equity in Initial Public Offerings
Private Equity

Shantanu Dutta

Arup Ganguly

Lin Ge

Oxford University Press

This chapter focuses on the role played by venture capital (VC) firms in initial public offerings (IPOs). The literature shows the characteristics and strategic objectives of VC firms can affect a firm’s IPO decision and performance. The chapter also explores the relevant issues in VC-backed IPOs, starting with the various conflicts of interest and then examines the three distinct roles played by VC firms in IPOs: certification, underpricing, and monitoring. Research suggests that VC-backed IPOs that bear an implicit certification from a venture capitalist have lower costs of going public. A venture capitalist’s presence can also influence the underpricing phenomenon of an IPO. Although most early studies contend that VC-backed IPOs experience lower underpricing, the debate continues. The literature also shows that venture capitalists monitor their investments directly or indirectly to alleviate the problem of information asymmetry and control the behavior of entrepreneurs.

Keywords:   private equity, venture capital, initial public offerings, certification, underpricing, monitoring

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