Venture Capitalist Certification of IPOs

This article analyses a set of 4606 IPOs from the 1986 to 2000 period, specifically focusing on the certification effect associated with venture capital backing. It concludes that venture capitalists, particularly those of higher quality, are associated with lower issuance costs (both direct and indirect), increased upward price adjustments, and shorter lockup periods, all of which are consistent with a valuable certification role. In addition, it is found that even lower quality venture capitalists perform a certification role; however, it is specific to a set of penny stock (i.e. high information asymmetry) IPOs.