Venture capital backing and overvaluation: Evidence from the high-tech bubble

Abstract

We investigate the association between venture capital (VC) backing and the likelihood of firm overvaluation in the high-tech bubble period. We find strong evidence that a VC-backed firm is more likely than a non-VC-backed firm to be overvalued during the bubble period. A further investigation suggests that such an association exists only for VC-backed firms that have gone public recently and VC-backed firms over which venture capitalists (VCs) have high ownership or control. But outside the bubble period, all the differences in overvaluation between VC-backed and non-VC-backed firms disappear. Our findings provide additional evidence supporting VC opportunism in boom periods. © 2013, The Eastern Finance Association.