VENTURE CAPITAL DISTRIBUTIONS - SHORT-RUN AND LONG-RUN REACTIONS

Venture capital distributions, a legal form of insider trading, provid es an ideal arena for examining the share price impact of transactions by informed parties. These sales, which occur after substantial run-u ps in share value, generate a substantial price reaction immediately a round the event. In the months after distribution, returns apparently continue to be negative. When the short- and long-run reactions are de composed, they are consistent with the view that venture capitalists u se inside information to time stock distributions: Distributions of fi rms brought public by lower quality underwriters and of less seasoned firms have more negative price reactions.