Private Equity and Venture Capital Journal Review - Essay Example

cal analysis of the study of Brav and Gompers (1997) who tried to identify the underperformance of Initial Public Offerings using financial data from venture and non-venture firms. In fact approximately 934 venture-backed IPOs and 3,407 non – venture backed IPOs were used for the completion of the relevant study. The period to which these data refer should be characterized as sufficient – if taking into consideration the fact that data for the years 1972-1992 have been used in the relevant research.

Through this research Brav et al. (1997) came to the following conclusions: ‘venture-backed IPOs outperform non-venture - backed IPOs using equal weighted returns; value weighting significantly reduces performance differences and substantially reduces underperformance for non-venture-backed IPO’ (Brav et al., 1997, 1791). In other words, the underperformance of IPOs is depended primarily on the form/ type of IPOs; venture backed IPOs are less like to underperform if compared with the non-venture – backed IPOs.

The specific issue has been analyzed by Brav et al. (1997) using a wide range of views from existed literature. At a first level the above researchers refer to the study of Ritter (1991) and Loughran et al. (1995) highlighting ‘the severe underperformance of initial public offerings (IPOs) during the past twenty years; investors may systematically be too optimistic about the prospects of firms that are issuing equity for the first time’ (Brav et al., 1997, 1791). The studies of Ritter and Loughran et al.

can be used in order to present the possible prospects for IPOs in modern market. Other studies used by Brav et al. (1997, 1791) can be used in order to identify the key concepts related with the behaviour of IPOs (referring to their financial performance within a specific period of time). The views of other researchers like Lee et al. (1991), Gompers (1995), Hoshi et al. (1991) and Fazzari et al. (1988) have been used in order to support the