Grandstanding in the U.K. Venture Capital Industry

Barnes, Edel; Cahill, Edward; McCarthy, Yvonne

doi:10.3905/jai.2003.319100

Cited by 13 publications

(5 citation statements)

References 26 publications

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“…Prior research clearly indicates that there is substantial pressure on VC firms in the U.S. to bring companies public, resulting in "undercooked" IPOs (Barnes, Cahill and McCarthy, 2003). Gompers (1996) refers to this behavior on the part of U.S. VCs as "grandstanding."…”

Section: Venture Capital Syndicatesmentioning

confidence: 99%

Foreign IPO capital market choice: Understanding the institutional fit of corporate governance

Moore

Bell

Filatotchev

et al. 2012

Strategic Management Journal

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While product market choices have been central to strategy formulation for firms in the past, the integration of financial markets makes the choice of capital markets an equally important strategic decision. We advance a comparative institutional perspective to explain capital market choice by firms making an IPO in a foreign market. We find that internal governance characteristics (founder-CEO, executive incentives, and board independence) and external network characteristics (prestigious underwriters, degree of venture capitalist syndication, and board interlocks) are significant predictors of foreign capital market choice by foreign IPO firms. Our results suggest foreign IPO firms select a host market where the firms' governance characteristics and third party affiliations fit the host market's institutional environment.3

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Section: Venture Capital Syndicatesmentioning

confidence: 99%

Foreign IPO capital market choice: Understanding the institutional fit of corporate governance

Moore

Bell

Filatotchev

et al. 2012

Strategic Management Journal

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“…Support for the grandstanding hypothesis, however, is relatively robust. Evidence of shorter investment durations for younger VCs has been replicated across country contexts (e.g., Barnes, Cahill, & McCarthy, 2003 for the UK; Hibara & Mathew, 2004 for Japan). Although studies find mixed evidence on relative underpricing of IPOs backed by young VCs, observation of shorter investment durations is consistent around the world (e.g., Chahine, Filatotchev, & Wright, 2007 comparing the UK and France; Wu & Xu, 2018 for private VCs in China).…”

Section: Theory and Hypothesesmentioning

confidence: 96%

A multiple agency view of venture capital investment duration: The roles of institutions, foreignness, and alliances

Sethuram

Taussig

Gaur

2021

Global Strategy Journal

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Research Summary Venture capital firms (VCs) must simultaneously manage a range of relationships with investors, investees, prospective buyers, and co‐investors who frequently exert divergent influences on when investments should be exited. The greater weight of one particular relationship can lead a VC to exit an investment earlier than would maximize returns for that investment. In this study, we utilize a global sample to examine how VC firms' investment duration decisions are shaped by firm‐specific and environmental factors. Our findings suggest that VCs are less patient and exit faster when they have less experience, invest in more institutionally challenged host countries, or are foreign and invested in an emerging economy. Importantly, while co‐investing with other VCs increases patience in advanced economies, this effect disappears in emerging economies. Managerial Summary Agency theory explains why firms commonly capitalize on information advantages created by conditions of uncertainty to prioritize their own private interests over those shared with partners. This article introduces a framework, based on multiple agency theory, to examine the factors shaping the duration of venture capital firms' investments. Our findings, based on a sample of deals across 33 countries, suggest greater patience when host country market institutions are more advanced and venture capitalists themselves have more experience. In emerging economies only, we find that patience is increased by being local or from a foreign country with similarly challenging institutions. Importantly, while co‐investing with other venture capitalists increases patience in advanced economies, this effect disappears in emerging economies.

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“…Thus, the oft‐observed phenomenon of grandstanding can occur in the context of VC‐backed IPOs, which can give VC firms the incentive to exit an investment prematurely (Barnes, Cahill, & McCarthy, 2003; Gompers, 1993; Gompers, 1996). Typically, general partners of VC funds periodically raise follow‐on funds as the old funds approach the end of their limited lifetime (Metrick & Yasuda, 2011).…”

Section: Literature Review and Development Of Hypothesesmentioning

confidence: 99%

Should I stay, or should I go? – How fund dynamics influence venture capital exit decisions

Bock

Schmidt

2015

Rev Financ Econ

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We investigate the determinants of venture capital (VC) exit behavior after the lockup expiry in initial public offerings (IPOs) by considering insights from prospect theory and behavioral finance for the first time. Hereby, the paper concentrates on the under‐researched relationship between fund managers and the limited partners investing in these funds. The results from a proprietary dataset of 292 U.S. VC‐backed IPOs from 1991 to 2008 imply that VC firm characteristics and fund dynamics have a significant influence on the exit extent after the lockup expiry and may not always be in line with limited partners' interests, hinting at the relevance of behavior grounded in prospect theory. In particular, first‐time funds keep their shares longer after an IPO, whereas funds satisfied with current fund performance cash out soon after the end of the lockup period.

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Grandstanding in the U.K. Venture Capital Industry

Cited by 13 publications

References 26 publications

Foreign IPO capital market choice: Understanding the institutional fit of corporate governance

Foreign IPO capital market choice: Understanding the institutional fit of corporate governance

A multiple agency view of venture capital investment duration: The roles of institutions, foreignness, and alliances

Should I stay, or should I go? – How fund dynamics influence venture capital exit decisions

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