The sharemarket performance of Australian venture capital backed and non-venture capital backed IPOs

Abstract

We assess the initial day underpricing and long-run share performance of venture capital (VC) backed IPOs. We find, as expecte d, that estimates of underpricing are less severe using Habib and Lj ungqvist (1998) inspired measures that more accurate ly estimate the true wealth loss to the entrepreneur. However, we find no statistically significant difference in the underpricing of VC-backed and non-VC-backed IPOs. Further, unlike Lee, Taylor, and Walter (1996), we find that Australian IPOs do not underperform in the after-market. However, non- VC capital backed firms exhibited significantly positive returns while VC-backed firms earned normal r eturns. Our results are inconsistent with the hypothesis that VC-backed IPOs are certified to be high quality by mere virtue of being backed by venture capitalists.