May the force be with you: Investor power and company valuations

Hellmann, Thomas and Thiele, Veikko (2018) May the force be with you: Investor power and company valuations. UNSPECIFIED.

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Abstract

This paper examines the effect of investor power in a model of staged equity financing. It shows how the usual effect where market power reduces valuations can be reversed in later rounds. Once they become insiders, powerful investors may use their market power to increase, not decrease valuations. Even though powerful investors initially lower valuations, companies prefer to bring them inside to leverage their power in later financing rounds.
The paper also makes predictions about investor returns, and issues a warning that unrealized interim returns can be misleading predictors of final realized returns when powerful investors distort interim valuations.

Item Type: Other Working Paper
Keywords: staged financing, valuation, inside investor, market power, finance
Subject(s): Finance
Date Deposited: 09 Nov 2018 15:23
Last Modified: 09 Nov 2018 15:23
Funders: N/A
URI: http://eureka.sbs.ox.ac.uk/id/eprint/7009

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