Post-IPO operating performance, venture capital and the bubble years

We analyse the post-issue operating performance of 316 venture-backed and 274 non-venture UK IPOs 1985-2003. The finding of a statistically significant five-year, operational decline exhibited over the full sample period is not robust. Rather it is driven by the dramatic underperformance during the 1998-2000 bubble years while IPOs perform normally in the remaining years. Cross-section regression results indicate support for venture capital certification in the non-bubble years but a significantly negative relationship between operating performance and venture capitalist board representation during the bubble years. The bubble year underperformance is explained by market timing and by low quality companies taking advantage of investor sentiment.