The causal effect of venture capital backing on the underpricing of Italian initial public offerings

摘要

This paper investigates the role of venture capitalists in Italian Initial Public Offerings (IPOs). Between 1999 and 2012, venture capital (VC) backed IPOs are on average less underpriced than non-VC-backed IPOs. By using both matching methods and a regression-based approach to account for the non-random distribution of venture financing across firms, the analysis shows that underpricing difference is actually due to the causal effect of VC backing and that the raw comparison of the average underpricing between the two types of IPOs underestimates such effect. The result is consistent with the certification hypothesis, that is, having certified that the value of issuing firms would reflect all relevant inside information, VC backing will reduce the information asymmetry that arises in the IPO process and the cost of going public.