From the above data, VC/PE backed IPOs have been seen to have higher offering price and under pricing when compared to non VC/PE backed firms. The unit issuing costs of VC/PE backed firms are seen to be higher than that of non VC/PE backed ones. The P/E and P/B ration, offering scale as well as turnover rate of VC/PE backed firms is higher than that of the non VC/PE backed firms. The unit issuing costs of the VC/PE backed firms are slightly higher than that of non VC/PE backed institutions. The only disparity occurs in the success rate where the non VC/PE backed firms have a higher rate than the VC backed firms. The hypothesis which the researcher sought to investigate had a H1 and H0. The H1 held that companies backed by VC/PE and AI experienced less underpricing in their IPOs than the non VC backed IPOs. From the different data sets analyzed i.e. from Xinsheng (2012), Megginson and Weiss (1991) and Barry (1991) we find that the H1 was insignificant and false. This is because from the data analyzed, over a longer time series, the IPO under pricing for VC backed firms was higher in the long run as compared to non VC backed firms. The Null hypothesis on the other hand stated that those companies without any form of venture capital backing or PE funding experienced less under pricing in their IPOs than VC funded IPOs. From the data we found that indeed the non VC backed IPOs had a lesser under pricing as compared to VC backed IPOs in the long run. Therefore, due to this, the null hypothesis was seen to be true and significant. In trying to sum up this hypothesis, we find that the investors are over optimistic which often leads to IPO pricing falling more than its intrinsic value. This therefore makes the VC/PE backed firms to have a higher under pricing. The investors usually have confidence in VC backed investments and as such result to an increase in the demand for these stocks traded with high speculations. Therefore, the IPO becomes immensely oversubscribed and the IPO becomes higher than the intrinsic value which results to higher under pricing.
Posted on: Sun, 01 Sep 2013 07:49:49 +0000
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