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Prior research underscores the critical role of prestigious underwriters in shaping the success of the initial public offering (IPO) process, particularly for young firms that do not have much of a track record. Recent scholarly work has shown that the likelihood of a start-up securing a lead prestigious underwriter is influenced by its ability to provide important signals of organizational legitimacy, as conveyed in the employment experiences of the firm's top management team. Building further on theories of organizational attention and decision making, this chapter seeks to examine whether lead prestigious underwriters also consider different types of signals of organizational legitimacy that might be suggested by the existence of ties between young firms and corporate venture capital (CVC) investors.Analysis of 1830 IPOs during 1990–1999 indicates that having a tie to CVC investor provides added legitimacy value over that provided by independent venture capital investors alone. Further analysis of 315 IPOs affiliated with CVC investors suggests that prestigious underwriters pay attention primarily to endorsement-rather than resource-related signals of legitimacy when it comes to CVC ties, and that they pay more attention to investment screening prominence than to business management prominence when it comes to endorsement legitimacy. We also found that prestigious underwriters pay more attention to signals of IPO legitimacy provided by CVC investment in IPO markets that are hot than those that are cold. Our findings provide important theoretical extensions to the study of the certification value of interorganizational affiliations and its impact on IPO success.

We investigate whether external investment banks or internal key IPO insiders such as company directors and officers, venture capitalists and institutions that hold an IPO's stock serve as effective monitors of IPO investments over the post-IPO period. We measure median changes in each group's holdings for the sample, finding large changes in these values during a long-run holding period. We find that long-run buy-and-hold returns (BHARs) are positively related to the lead investment bank underwriter reputation and the gross spread demonstrating that the external monitoring by investment banking firms increases the post-IPO firm's value. Holding the underwriter reputation constant, we find that the BHARs are positively related to the gross spread, also indicative of the value of monitoring by external investment banks.

Some commentators suggest that the Wall Street views family firms with scepticism. The appointment of independent directors to form a majority on a firm's board of directors should constitute a strong signal to the market of a family firm's willingness to be monitored objectively and thus should alleviate Wall Street's scepticism. This is likely to be more important for the newly public family firms than for mature family firms since outsider-domination on the board pre-dates the involvement of other outsiders, such as underwriters, financial analysts, or institutional investors. Whether the presence of an independent board alleviates the market's scepticism may be evident in the responses of various external monitoring entities to the newly public family and non-family firms. Using a hand-collected sample of newly public firms, we cast brand-new light on whether an independent board provides any advantage to the newly public family firms in underwriter reputation, analyst coverage, and investment by institutional investors over newly public non-family firms. We find that independence of board of directors is overall a positive signal and that while the independence of board is more important than the independence of management for underwriters and financial analysts, the reverse is the case for institutional investors.

This chapter investigates the impact of venture capitalists on the operating and market performance of firms going public on the French Nouveau Marché, the German Neuer Markt and the British techMARK. Considering different variables that reflect the quality of venture-backing, the findings suggest that venture-backed firms do not generally outperform those without venture-backing. However, a subgroup of internationally operating venture capitalists has positive effects on the performance of portfolio firms. The outcome is interpreted as evidence of heterogeneity among venture capitalists in the European market.

In this chapter we investigate whether the pricing of IPOs on Europe’s new stock market differs from that of IPOs on main market segments. We report a 22.3 percentage point difference in the average first-day return of new market IPOs (34.3%) and the average first-day return of main market IPOs (12%). We show that reduced incentives to control wealth losses and different firm and offer characteristics partially explain the higher average first-day return on new market segments. We also find that the bundling of IPO deals has been more important to control underpricing costs on new market than on main market segments.

Economic theory posits a universal sociocultural orientation toward pricing complicated only by systematic cognitive biases. While institutional and organizational theorists have challenged the purported homogeneity of market logics, they have not linked market heterogeneity to price outcomes. If market logics are internally complex with multiple orientations toward pricing, skilled actors should be able to influence prices through market logics. This study utilizes qualitative analysis of interview data with a stratified random sample (75 percent response rate) of key participants to examine how investment banks (underwriters) instantiate a hybrid market logic in the Initial Public Offering (IPO) market. Underwriters exploit their status position to promulgate IPO pricing methods contradicting neoclassical rationality, behavioral models of pricing, and the underwriters’ own calculative mode of behavior. They successfully create this hybrid logic for issuers while hiding the nature of their market power through deceptive use of vocabulary from the market logic itself. Hence, the internal complexity of market logics directly impacts financial prices, with skilled actors achieving superior outcomes. This study concludes with an assessment of the implications for price theory, developing propositions to guide future research on market logics and pricing.

Economic theory posits a universal sociocultural orientation toward pricing complicated only by systematic cognitive biases. While institutional and organizational theorists have challenged the purported homogeneity of market logics, they have not linked market heterogeneity to price outcomes. If market logics are internally complex with multiple orientations toward pricing, skilled actors should be able to influence prices through market logics. This study utilizes qualitative analysis of interview data with a stratified random sample (75 percent response rate) of key participants to examine how investment banks (underwriters) instantiate a hybrid market logic in the Initial Public Offering (IPO) market. Underwriters exploit their status position to promulgate IPO pricing methods contradicting neoclassical rationality, behavioral models of pricing, and the underwriters’ own calculative mode of behavior. They successfully create this hybrid logic for issuers while hiding the nature of their market power through deceptive use of vocabulary from the market logic itself. Hence, the internal complexity of market logics directly impacts financial prices, with skilled actors achieving superior outcomes. This study concludes with an assessment of the implications for price theory, developing propositions to guide future research on market logics and pricing.

Advisors play a key role in the mergers and acquisitions (M&A) process, but research to date has rarely focused on how their influence impacts these transactions. The present chapter takes stock of the present literature on M&A advisors from finance, economics, and management in order to integrate the currently diverging research traditions into a coherent framework. The current research has focused on proximal acquisition outcomes, like acquisition premiums or expected performance in the form of cumulative abnormal returns, but there is limited theoretical understanding of the advisors impact on the post-acquisition period. Moreover, while the role of advisor reputation has been highlighted on both the management and finance literatures as an important aspect of the role advisors play in the M&A process, there seems to be much to be addressed. Furthermore, and perhaps most importantly, the nature of the relationship between the advisor and the acquirer or target presents challenges to researchers where the advisor acts both as a provider of expertise in the M&A process, but may be simply acting on their own best interest. The new framework that the authors present here provides management scholars with a roadmap into a cohesive research agenda that can inform our theoretical understanding of the role of M&A advisors.

In this study, we examine the relationship between political connections of private firms and the initial public offering process. Using registration statement information, we create a unique database of politically connected IPO firms. We find that political connections are substitutes to high-quality underwriters and big four auditors. Politically connected firms manage earnings more highly upward than non-connected firms prior to the public offering. Politically connected firms also exhibit less underpricing than non-connected firms. Finally, politically connected IPO firms have superior post-IPO returns relative to non-connected IPO firms.

This chapter investigates whether non venture-backed, venture-backed and bridge financed companies going public on Germany’s Neuer Markt differ with regard to issuer characteristics, balance sheet data or offering characteristics. Moreover, this chapter contributes to the underpricing literature by focusing on the role of venture capitalists and underwriters in certifying the quality of a company. Companies backed by a prestigious venture capitalist and/or underwritten by a top bank are expected to show less underpricing at the Initial Public Offering (IPO) due to reduced ex-ante uncertainty. This analysis provides evidence to the contrary: VC-backed IPOs appear to be more underpriced than non VC-backed IPOs.