We assess the initial underpricing and long-run share performance of venture capital (VC)-backed IPOs. We find, as expected, that estimates of underpricing are less severe using Habib and Ljungqvist [Economics Letters 61 (1998) 381] inspired measures that more accurately 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 et al. [Journal of Banking and Finance 20 (1996) 1189], we find that Australian IPOs do not underperform in the after-market. Non-VC capitalbacked and VC-backed firms earn normal returns in the 2 years following listing. Our results are inconsistent with the hypothesis that VC-backed IPOs are certified as high quality by mere virtue of being backed by venture capitalists.
- Long-run performance
- Venture capital