Europ. Business School, Diss., 2006--Oestrich-Winkel.

Zugl.: Bayreuth, Universiẗat, Diss., 2008.

Sankt Gallen, Universiẗat, Diss., 2008.

Zugl.: Hohenheim, Univ., Diss., 2008

Zugl.: Leipzig, Universiẗat, Diss., 2008. / Includes bibliographical references (p. [502]-534) and index.

Thesis (Ph. D.)--Columbia University, 1993. / Includes bibliographical references.

Universiẗat, Diss., 2002 u.d.T.: Gerig, Gunnar: IPOs aus der Corporate-Governance-Perspektive--Heidelberg.

No description available.

The thesis investigates the link between internal and external funds in financing new investment when asymmetric information is important. In both chapter, the entrepreneur has private information about the value of a project and, if the quality of the project is high, she tries to signal this to outside investors. The first chapter explores the tradeoff between using internal funds and raising external funds by issuing shares or bonds to finance a project. The entrepreneur can delay the project to accumulate internal funds over time from existing operations. This allows an entrepreneur with a high quality project to reduce her reliance on expensive underpriced bond or share issues. However, accumulating funds is also costly because of discounting and the risk that the project disappears. The more valuable the good project, the less the entrepreneur will delay the project, risking its loss, and so the more she relies on external financing. When external financing is sought, the entrepreneur decides to issue bonds or shares. The greater the value of the good project, the more underpriced shares are relative to bonds. Thus an entrepreneur with a highly valuable good project chooses equity and one with a less valuable project chooses debt. Combining the two results shows that for a highly valuable good project, debt is used, and for a less valuable project, internal funds are used. External equity gets squeezed out. Aggregate data for the U.S. confirm that corporate bond issues are a more important source of funds than new share issued. Furthermore, most small firms rely on internal funds and debt, rather than external equity to finance their projects. The second chapter provides a new theory for the underpricing of initial public offerings (IPOs). As in the first chapter, underpricing is used as a signal of quality. However, the entrepreneur is risk averse and only underprices when she cannot sell enough primary (new) shares to raise sufficient proceeds from the IPO to cover the cost of the project without diluting her position below that needed to signal a high project value. Underpricing allows the entrepreneur to maintain a high stake in the firm and still make a credible signal of quality. This allows more primary shares to be sold resulting in a net increase in proceeds. The model predicts that underpricing should be greatest among firms that don't sell secondary shares (shares held by insiders) at the IPO and that there should be a positive relationship between the firm's capital requirement and the initial return among this group of firms only. A switching regression framework is used. The probit model is first estimated where the probability of no secondary shares is explained by proxies for a firm's capital requirements. The initial return is then regressed on the same proxies, conditioning on whether the firm sells secondary shares or not and accounting for possible correlation between errors in the selection and regression equations. Strong support is found for the positive relationship between initial return and capital requirements for only firms without secondary share sales, as predicted. / Arts, Faculty of / Vancouver School of Economics / Graduate

Prior literature suggests two competing theories regarding the role of venture capitalists (VCs) in their portfolio companies. The VC monitoring hypothesis argues that VCs effectively resolve the managerial agency problem through close monitoring and restraining managers' earnings management behavior. The VC moral hazard hypothesis argues that VCs aggravate the private benefits agency problem by exerting influence over managers to artificially inflate exit stock price through earnings management. Using a sample of IPO firms between 1987 and 2002, after controlling for the magnitude of accruals manipulation (AM), I compare the magnitude of real activities manipulation (RM) between venture-backed and non-venture-backed companies. I find that relative to non-venture-backed companies, venture-backed companies show significantly less RM in the first post-IPO fiscal year. The results are robust after controlling for the VC selection endogeneity. The finding supports the VC monitoring hypothesis that VCs restrain managers' RM behavior. Furthermore, I document that venture-backed companies exhibit a significant difference from non-venture-backed companies only in the first post-IPO fiscal year. The difference between the two groups in either the IPO year or the second post-IPO fiscal year is not significant, or at best, is weak. This finding is consistent with the argument that VCs tighten their control during the lockup expiration period when insiders such as managers or founders have strong incentives to inflate earnings. By the end of the second post-IPO fiscal year when VCs exit the portfolio companies, their impact on portfolio companies' RM decreases dramatically which makes the difference between the two groups less significant. In addition, using a sample of venture-backed IPOs from 1987 to 2002, I find that companies backed by high-reputation VCs show significantly less RM than those backed by low-reputation VCs in the first post-IPO fiscal year. The results are robust to alternative VC reputation proxies. This finding is consistent with the argument that high-reputation VCs have more incentives to preserve reputation and better ability to monitor managers than low-reputation VCs.