- Elgar original reference
Edited by James R. Barth, Chen Lin and Clas Wihlborg
Chapter 28: The Role of Venture Capitalists in the Acquisition of Private Companies
28 The role of venture capitalists in the acquisition of private companies Paul A. Gompers and Yuhai Xuan* 28.1 INTRODUCTION The motivation for and the performance implications of acquisitions have been important areas for corporate finance researchers. We explore the characteristics of one particular type of acquisition, the acquisition of venture capital-backed private companies. Unlike other companies, young, private venture capital-backed companies have values that are primarily based upon real options, that is, future investment opportunities. For most companies, their values may be determined more by assets in place. Venture capital-backed companies, on the other hand, are generally small with relatively minor sales, but substantial technology and intellectual property. Large public companies may be motivated to purchase these companies because they represent potential future investment opportunities for them or because the young start-up may be a future competitor of the firm. As such, we expect that the characteristics of acquirers of venture capital-backed private companies as well as the market’s reaction to their announcement and long-run performance may differ from other types of public or private acquisitions. Prior research on acquisitions (Jensen and Ruback, 1983) has shown that announcement period event returns for acquiring firm shareholders tend to be insignificant or slightly negative. Cash mergers have consistently higher announcement period abnormal returns than those financed with stock. Moeller et al. (2004) find that shareholders of small acquirers gain from acquisition announcements and those of large acquirers suffer losses. In addition, acquirer announcement period returns for private targets are typically higher...
You are not authenticated to view the full text of this chapter or article.
Elgaronline requires a subscription or purchase to access the full text of books or journals. Please login through your library system or with your personal username and password on the homepage.
Non-subscribers can freely search the site, view abstracts/ extracts and download selected front matter and introductory chapters for personal use.
Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.