Gompers Xuan (2008) - Bridge Building In Venture Capital Backed Acquisitions

This page is referenced under:

• VC Acquisitions Paper
• VC Acquisitions Lit Review

Reference

Note: This reference needs updating

Gompers, P.A. and Xuan, Y. (2008), "Bridge building in venture capital-backed acquisitions", HBS Working paper (pdf)

@book{gompers2008bridge,
  title={Bridge building in venture capital-backed acquisitions},
  author={Gompers, P.A. and Xuan, Y.},
  year={2008},
  publisher={Harvard Business School},
  abstract={This paper studies the role of common venture capital investors in alleviating asymmetric information between public acquirers and private venture capital-backed targets. We find that acquisition announcement returns are more positive for acquisitions in which both the target and the acquirer are financed by the same venture capital firm. Similarly, having a common investor increases both the likelihood that a transaction will be all equity-financed as well as the fraction of stock in the overall acquisition payment. In addition, an acquisition is more likely to take place when there is a common venture capital investor linking the acquirer and the target. Our results suggest that common venture capital investors can form a bridge between acquiring and target firms that reduces asymmetric information associated with the transaction for both parties.},
  filename={Gompers Xuan (2008) - Bridge Building In Venture Capital Backed Acquisitions.pdf}
}

Abstract

This paper studies the role of common venture capital investors in alleviating asymmetric information between public acquirers and private venture capital-backed targets. We find that acquisition announcement returns are more positive for acquisitions in which both the target and the acquirer are financed by the same venture capital firm. Similarly, having a common investor increases both the likelihood that a transaction will be all equity-financed as well as the fraction of stock in the overall acquisition payment. In addition, an acquisition is more likely to take place when there is a common venture capital investor linking the acquirer and the target. Our results suggest that common venture capital investors can form a bridge between acquiring and target firms that reduces asymmetric information associated with the transaction for both parties.