The authors are respectively from the University of Birmingham; UMIST; and the University of Nottingham. They would like to thank Mike Theobald, Edel Barnes, Douglas Cumming, participants at the 2002 European Financial Management Annual Meeting in London and staff seminars at Lancaster University, Nottingham University and City University for their helpful comments. They would like especially to thank an anonymous referee for constructive suggestions. The research assistance of Chia Ying Chan and Sushma Iyer is also gratefully acknowledged.
Performance of Private to Public MBOs: The Role of Venture Capital
Version of Record online: 20 APR 2005
Journal of Business Finance & Accounting
Volume 32, Issue 3-4, pages 643–682, April 2005
How to Cite
Jelic, R., Saadouni, B. and Wright, M. (2005), Performance of Private to Public MBOs: The Role of Venture Capital. Journal of Business Finance & Accounting, 32: 643–682. doi: 10.1111/j.0306-686X.2005.00608.x
- Issue online: 20 APR 2005
- Version of Record online: 20 APR 2005
- venture capital;
- long-run performance
Abstract: Using a unique dataset, we examine financial performance, and venture capital involvement in 167 MBOs exiting through IPOs (MBO-IPOs) on the London Stock Exchange, during the period 1964 –1997. VC backed MBOs seem to be more underpriced than MBOs without venture capital backing, based on average value-weighted returns. MBOs backed by highly reputable VCs tend to be older companies, and exit earlier than MBOs backed by less reputable VCs. The results contradict ‘certification’ and ‘grandstanding’ hypotheses supported by US data (Megginson and Weiss, 1991; and Gompers, 1996, respectively). We found no evidence of either significant underperformance, or that VC backed MBOs perform better than their non-VC backed counterparts in the long run. However, MBOs backed by highly reputable venture capital firms seem to be better long-term investments as compared to those backed by less prestigious venture capitalist firms. The results remain robust after using different methods to measure performance, and after controlling for sample selectivity bias.