Does venture capital syndication affect mergers and acquisitions?

Giang Nguyen, Le Vu

Research output: Contribution to journalArticleResearchpeer-review

Abstract

We find that venture capital (VC) syndicate-backed targets receive higher acquisition premiums and spend more time negotiating transaction terms. The acquirers of syndicate-backed targets receive lower cumulative abnormal returns surrounding the acquisition announcement, but they outperform the individual-backed targets in the long-term. We show that VC syndication creates value for entrepreneurial firms by leading to larger and more independent boards of directors prior to acquisition. It also leads to better incentive alignment between the CEO and the shareholders of the acquiring firm. In addition, syndicate-backed targets prefer stock as the method of payment in mergers and acquisitions. Collectively, we show that VC syndication creates value for both entrepreneurial firms and their acquirers in the long-term.

Original languageEnglish
Article number101851
Number of pages21
JournalJournal of Corporate Finance
Volume67
DOIs
Publication statusPublished - Apr 2021

Keywords

  • Merger and acquisition
  • Syndication
  • Venture capital

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