Venture capital, ownership structure, accounting standards and IPO underpricing: Evidence from Germany

This study investigates the impact of venture capital (VC), ownership structure, and accounting standards on initial public offering (IPO) underpricing in Germany. Using data from Germany's Neuer Markt (NM), we test two key hypotheses regarding IPO underpricing; first, whether VC ownership and higher levels of post-IPO insider ownership result in lower underpricing, and second, whether additional information disclosure results in lower underpricing. Besides the standard underpricing measure, we also use a modified underpricing measure to better assess true entrepreneurial wealth loss. Robust findings indicate that none of these factors are significant in lowering IPO underpricing, which suggests the importance of examining standard theories within alternative institutional environments. Results are consistent with the stylized fact that Germany's NM firms had relatively minimal use of VC financing, which may point to not only a weaker role for venture capitalists in Germany but fewer incentives to reduce information asymmetry arising from outside ownership.