Do Public Financial Statements Influence Venture Capital and Private Equity Financing?

Venture capital and private equity funds are important equity investors in private companies (Hand 2005; Stromberg 2008; Kaplan and Stromberg 2009), and their investments are characterized by an extensive search process that imposes significant upfront costs for the funds (Chen et al. 2010; Teten and Farmer 2010; Gompers et al. 2016, 2019).[1] We hypothesize that private companies’ public financial statements (and the information therein) can mitigate these costs by providing a relatively less costly screening tool to identify potential targets at the pre-investment stage. In particular, public financial statements can help VC and PE funds to identify potential investment … Read more