We study the predictive power of patents on the long-run performance of venture capital (VC)-backed initial public offerings (IPOs). We show that VC-backed IPOs that have at least one patent at the time of the IPO substantially outperform other VC-backed IPOs, with 3-year buy-and-hold market-adjusted returns of -7.1% vs. -23.3%. On average, VC-backed IPOs without patents perform similarly to non-VC-backed IPOs. We also report that VC-backed IPOs from 1981-1998 outperformed other IPOs, but the pattern has reversed for IPOs from 1999-2006. Although a smaller proportion of non-VC-backed IPOs possess patents, those with patents also outperform those without patents.
Initial public offerings, Venture capital, Patents, Innovation, Long-run performance
Finance and Financial Management
CAO, Jerry X.; JIANG, Fuwei; and RITTER, Jay R.
Patents, innovation, and performance of venture capital-backed IPOs. (2015). Research Collection Lee Kong Chian School Of Business.
Available at: http://ink.library.smu.edu.sg/lkcsb_research/5230
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