An examination of new ventures going through the initial public offering: The impact of firm capabilities and characteristics on performance

Entrepreneurship as a field of study generally focuses on the pursuit of new opportunities and the activities of firms engaged in bringing new ideas to financial fruition. Due to their liability of newness, growth and survival are never a certainty for new ventures; indeed, organizational failure is much more common. Those new ventures that do attain a modicum of success often seek to "go public" through an initial public offering (IPO) of their stock in order to raise additional capital. This three-essay dissertation examines the performance of a sample of new ventures both at the time of the IPO as well as one year hence. The first study examines how venture capitalists (VCs) assist their organizations during the post-IPO period. Results suggest that VCs assist their organizations in reacting better to identified threats. The second study examines the nature of the underwriting process and identifies when greater underpricing is expected. Results provide evidence that underwriters pursue greater underpricing when possible (likely in order to create loyalty among their institutional investors). On the other hand, we find that new ventures can mitigate the likelihood of underpricing by reducing their information asymmetry concerning the value of the venture and by demonstrating stronger insider representation on the board of directors. The third study examines how signals impact the new venture at the time of the IPO. We find that the lockup period is often used in lieu of other signals which may be unavailable (such as prestigious underwriter backing or venture capital backing). Ventures with higher uncertainty or performance problems at the time of the IPO can reduce investor uncertainty and concomitantly the amount of underpricing when the lockup period is extended.