Download pdf
What Does Venture Capitalists Learn From IPO Failures?
- 1 Jinan University
* Author to whom correspondence should be addressed.
Abstract
Venture capital investors focus on early-stage enterprises, the market participants have limited information about their prospects. Their investment decisions involve complicated factors and potentially the failures in the past can affect their future investment decisions. In this paper, within the context of venture capital investment, I examined the impact of the rate of IPO failures in one sector on future investment in the same sector. However, the direction of effect is ambiguous. The learning effect from past failure can be positive if the VC investors gain valuable experience from it. Alternatively, the learning effect can be negative as it reveals the VCs’ incapability to invest in that given sector. I exploit a data set from Preqin and a fixed-effect model to help me identify results that are consistent with a positive learning story. This finding contributes to our understanding of how VC investors make investment decisions and how financial market participants react to failures more broadly.
Keywords
IPO, venture capital, fixed-effect model
[1]. Gornall W, Strebulaev I A. The economic impact of venture capital: Evidence from public companies[J]. Available at SSRN 2681841, 2021.
[2]. Gompers P, Kaplan S N, Mukharlyamov V. What do private equity firms say they do?[J]. Journal of Financial Economics, 2016, 121(3): 449-476.
[3]. Harris R S, Jenkinson T, Kaplan S N. How do private equity investments perform compared to public equity?[J]. 2015.
[4]. Gompers P A. Optimal investment, monitoring, and the staging of venture capital[J]. The journal of finance, 1995, 50(5): 1461-1489.
[5]. Agarwal R. Technological activity and survival of firms[J]. Economics Letters, 1996, 52(1): 101-108.
[6]. Shapiro C. Premiums for high-quality products as returns to reputations[J]. The quarterly journal of economics, 1983, 98(4): 659-679.
[7]. Sørensen M. How smart is smart money? A two‐sided matching model of venture capital[J]. The Journal of Finance, 2007, 62(6): 2725-2762.
[8]. [8Harris R S, Jenkinson T, Kaplan S N. Private equity performance: What do we know?[J]. The Journal of Finance, 2014, 69(5): 1851-1882.
[9]. Huang J, Jain B A, Shao Y. CEO power, product market competition and the acquisition motive for going public[J]. Accounting & Finance, 2019, 59(4): 2479-2507.
[10]. Hermansson C, Song H S. Financial advisory services meetings and their impact on saving behavior–A difference-in-difference analysis[J]. Journal of Retailing and Consumer Services, 2016, 30: 131-139.
Cite this article
Yang,J. (2023). What Does Venture Capitalists Learn From IPO Failures?. Advances in Economics, Management and Political Sciences,8,37-42.
Data availability
The datasets used and/or analyzed during the current study will be available from the authors upon reasonable request.
Disclaimer/Publisher's Note
The statements, opinions and data contained in all publications are solely those of the individual author(s) and contributor(s) and not of EWA Publishing and/or the editor(s). EWA Publishing and/or the editor(s) disclaim responsibility for any injury to people or property resulting from any ideas, methods, instructions or products referred to in the content.
About volume
Volume title: Proceedings of the 2nd International Conference on Business and Policy Studies
© 2024 by the author(s). Licensee EWA Publishing, Oxford, UK. This article is an open access article distributed under the terms and
conditions of the Creative Commons Attribution (CC BY) license. Authors who
publish this series agree to the following terms:
1. Authors retain copyright and grant the series right of first publication with the work simultaneously licensed under a Creative Commons
Attribution License that allows others to share the work with an acknowledgment of the work's authorship and initial publication in this
series.
2. Authors are able to enter into separate, additional contractual arrangements for the non-exclusive distribution of the series's published
version of the work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgment of its initial
publication in this series.
3. Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) prior to and
during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work (See
Open access policy for details).