The Journal of Finance

Venturing beyond the IPO: Financing of Newly Public Firms by Venture Capitalists

Published: 02/24/2020   |   DOI: 10.1111/jofi.12879

PETER ILIEV, MICHELLE LOWRY

Contrary to conventional wisdom, we document that approximately 15% of venture capitalist (VC)‐backed firms raise additional capital from VCs in the five years after going public. We propose two explanations for why firms revert to VC financing post‐IPO (initial public offering). First, we hypothesize that VC participation in post‐IPO financing represents an efficient solution to informational problems that would otherwise constrain firms’ abilities to exploit value‐increasing investments. Analyses of firm and VC characteristics, together with the finding that these investments are value‐increasing for both VCs and the underlying companies, support this hypothesis. We find no support for the alternative that agency conflicts motivate these investments.

IPO Market Cycles: Bubbles or Sequential Learning?

Published: 12/17/2002   |   DOI: 10.1111/1540-6261.00458

Michelle Lowry, G. William Schwert

Both IPO volume and average initial returns are highly autocorrelated. Further, more companies tend to go public following periods of high initial returns. However, we find that the level of average initial returns at the time of filing contains no information about that company's eventual underpricing. Both the cycles in initial returns and the lead‐lag relation between initial returns and IPO volume are predominantly driven by information learned during the registration period. More positive information results in higher initial returns and more companies filing IPOs soon thereafter.

The Variability of IPO Initial Returns

Published: 03/19/2010   |   DOI: 10.1111/j.1540-6261.2009.01540.x

MICHELLE LOWRY, MICAH S. OFFICER, G. WILLIAM SCHWERT

The monthly volatility of IPO initial returns is substantial, fluctuates dramatically over time, and is considerably larger during “hot” IPO markets. Consistent with IPO theory, the volatility of initial returns is higher for firms that are more difficult to value because of higher information asymmetry. Our findings highlight underwriters’ difficulty in valuing companies characterized by high uncertainty, and raise serious questions about the efficacy of the traditional firm‐commitment IPO process. One implication of our results is that alternate mechanisms, such as auctions, could be beneficial for firms that value price discovery over the auxiliary services provided by underwriters.