Abstract

VCs and underwriters play an important, but underexplored, role in IPOs. Ownership, length of board service, and number of VCs invested in the pre-IPO firm is negatively related to underpricing and VC involvement is “recognized by capital markets through lower underpricing for IPOs with better monitors” (Barry et al, 1990: 447).

Previous research raises a number of questions regarding the pre/post-IPO roles of VCs and investment bankers. The present study tests multiple agency perspectives to understand how different types of VCs and underwriters can undermine process outcomes. By examining the performance of firms accused of material mis-statement of operational facts and/or performance expectations, we discern differences between VCs and underwriters on the control issues of interest. This legal action sample is prima facie evidence of breakdown in monitoring and certification.

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