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This paper analyzes the relationship between pre-IPO growth and the post-IPO long-run performance for venture capital (VC)-backed firms. Our results show that the effect of pre-IPO growth on post-IPO long-run performance is positive, but is attenuated by venture capital in a matched sample. Focusing on VC-backed IPO firms, we find an inverted-U relationship between pre-IPO growth and post-IPO long-run performance. In addition, our baseline results continue to hold in a variety of settings, including post-IPO profitability performance and ownership divisions of venture capital. We explore one underlying interpretation through which post-IPO long-run performance exhibits a reversal when pre-IPO growth increases to a saturation point: VC-backed firms tend to engage in accounting fraud due to the incentives from some opportunistic VCs to take firms public earlier.

This paper analyses the different effects of foreign venture capital (FVC) and domestic venture capital (DVC) on innovation for IPOs. Using patent counts to measure innovation, the results indicate that FVC‐backed firms are less innovative than DVC‐backed firms. Our findings are robust after controlling for the sample selection bias using a propensity score matching approach. One possible underlying mechanism through which FVCs nurture less innovation is their inferior geographic proximity to investment targets.

This study analyzes how investor attention to industries affects firm valuations in the venture capital market. Relying on aggregate search frequency in Baidu, we construct a direct measure of investor attention to industries (ASVI). Our results show that an increase in ASVI predicts higher firm valuations. We prove that the price increase is an attention-induced result rather than an information-based fundamental premium, which is due to the evidence of a long-run reversal of firm valuations and worse performance of VC investments. Our findings continue to hold across a wide range of robustness checks, including sample selection, endogeneity, alternative measures of ASVI. We also find that syndicated investments and involvement of experienced venture capitalists attenuate the effect of ASVI on firm valuations, further supporting the attention-induced view.