The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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Optimal Investment, Monitoring, and the Staging of Venture Capital
Published: 12/01/1995 | DOI: 10.1111/j.1540-6261.1995.tb05185.x
PAUL A. GOMPERS
This paper examines the structure of staged venture capital investments when agency and monitoring costs exist. Expected agency costs increase as assets become less tangible, growth options increase, and asset specificity rises. Data from a random sample of 794 venture capital‐backed firms support the predictions. Venture capitalists concentrate investments in early stage and high technology companies where informational asymmetries are highest. Decreases in industry ratios of tangible assets to total assets, higher market‐to‐book ratios, and greater R&D intensities lead to more frequent monitoring. Venture capitalists periodically gather information and maintain the option to discontinue funding projects with little probability of going public.
The Really Long‐Run Performance of Initial Public Offerings: The Pre‐Nasdaq Evidence
Published: 07/15/2003 | DOI: 10.1111/1540-6261.00570
Paul A. Gompers, Josh Lerner
Financial economists have intensely debated the performance of IPOs using data after the formation of Nasdaq. This paper sheds light on this controversy by undertaking a large, out‐of‐sample study: We examine the performance for five years after listing of 3,661 U.S. IPOs from 1935 to 1972. The sample displays some underperformance when event‐time buy‐and‐hold abnormal returns are used. The underperformance disappears, however, when cumulative abnormal returns are utilized. A calendar‐time analysis shows that over the entire period, IPOs return as much as the market. The intercepts in CAPM and Fama–French regressions are insignificantly different from zero, suggesting no abnormal performance.
Myth or Reality? The Long‐Run Underperformance of Initial Public Offerings: Evidence from Venture and Nonventure Capital‐Backed Companies
Published: 04/18/2012 | DOI: 10.1111/j.1540-6261.1997.tb02742.x
ALON BRAV, PAUL A. GOMPERS
We investigate the long‐run underperformance of recent initial public offering (IPO) firms in a sample of 934 venture‐backed IPOs from 1972–1992 and 3,407 nonventure‐backed IPOs from 1975–1992. We find that venture‐backed IPOs outperform non‐venture‐backed IPOs using equal weighted returns. Value weighting significantly reduces performance differences and substantially reduces underperformance for nonventure‐backed IPOs. In tests using several comparable benchmarks and the Fama‐French (1993) three factor asset pricing model, venture‐backed companies do not significantly underperform, while the smallest nonventure‐backed firms do. Underperformance, however, is not an IPO effect. Similar size and book‐to‐market firms that have not issued equity perform as poorly as IPOs.