Brander Egan (2007) - The Role of VCs in Acquisitions

Summary

This is a Working Paper. Please do not distribute.

This paper is listed under:

• Venture Capital Research

Reference

Brander, James A. and Edward J. Egan (2008), "The Role of Venture Capitalists in Acquisitions", University of British Columbia, Working Paper. Proceedings of the Annual Conference, Administrative Science Association of Canada, Banff, Alberta (June ‘06),

Status

This paper has been submitted to and rejected from:

• JF: The Journal of Finance (submitted Sept '05, rejected immediately)
• JSBM: The Journal of Small Business Management (submitted Oct '06, rejected after 2 revisions)
• JEMS: The Journal of Economics and Management Strategy (submitted '06?, rejected after 3 revisions)
• JBV: The Journal of Business Venturing (submitted Jan '07, rejected after 2 revisions)
• RFS: Review of Financial Studies (submitted Apr '08, rejected immediately)

This paper was presented at:

• The Annual Conference, Administrative Science Association of Canada, Banff, Alberta (June ‘06)

File(s)

• Brander Egan (2007) - The Role of VCs in Acquisitions (Working Paper)

Keywords

Acquisitions, Venture Capital, Information Technology, Information Asymmetry

Abstract

We study the effect of venture capital on returns to acquisitions of privately-held enterprises. One hypothesis is that venture capital provides “certification” of acquisition target quality under asymmetric information and therefore yields higher acquisition prices. An alternative “bargaining” hypothesis is that venture capitalists obtain higher acquisition prices through superior bargaining. An event study of U.S. acquisitions in the 1980-2006 period indicates that venture capital lowers abnormal returns (implying higher acquisition prices) for Information Technology (IT) acquisitions but not for other acquisitions. As evidence suggests that IT has relatively high levels of informational asymmetry, our analysis favors the certification hypothesis.