Pricing and Operating Efficiency of Venture-Backed and Nonventure-Backed Internet Ipos (Initial Public Offerings‪)‬

ABSTRACT Initial Public Offerings (IPOs) were the most popular form to raise new capital in the united States during the last decade (1990-2000). Thousands of companies went public for the first time, particularly in the technology-heavy Nasdaq stock market. Along with the regular IPOs came the Internet IPOs backed by the venture-capitalists, who specialize in financing promising start-up companies and bringing them public. When we examine these Internet IPOs issued during 19962001, we find that the first-day returns of both the venture-backed and nonventure-backed IPOs were much higher than in other time periods, but they were slightly higher for the nonventure-backed IPOs than that of the venture-backed IPOs. Also, the former group performed better than the latter group regarding operating ratios and the growth of cash flows. The regression results show that the first-day closing price was significantly and negatively associated with the return variables, thus suggesting the underpricing of the Internet IPOs during 1996-2001--the period covered by our study.