Financial intermediary relationships and public market access

Abstract

We provide novel causal evidence on the impact of horizontal relationships between financial intermediaries. Specifically, we study how the exogenous loss of established ties between venture capital firms (VCs) and investment bank underwriters, caused by underwriter mergers and closures, affects a VCs’ ability to take portfolio companies public. Using a DiD approach, we show these disruptions decrease VC initial public offering exits by 9.5 percent and reduce fund multiples by 7.8 percent. These findings highlight the economic significance of relationship-specific capital, particularly human capital, in facilitating access to capital markets and reveal how intermediary networks shape VC performance.