Institutional Affiliation and the Role of Venture Capital:
Evidence from Initial Public Offerings in Japan
This version: March 2000 Yasushi Hamao (corresponding author) Marshall School of Business University of Southern California Los Angeles, CA 90089-1427 Phone/Fax 213-740-0822/310-450-5875 E-Mail: hamao@usc.edu Frank Packer Federal Reserve Bank of New York 33 Liberty Street, New York, NY 10045 Phone/Fax 212-720-6320/212-720-1582 E-Mail: frank.packer@ny.frb.org Jay R. Ritter Warrington College of Business Administration University of Florida Gainesville, FL 32611-7168 Phone/Fax 352-846-2837/352-392-0301 E-Mail: jay.ritter@cba.ufl.edu http://bear.cba.ufl.edu/ritter
Abstract
The presence of venture capital in the ownership structure of U.S. firms going public has been associated with both improved long-term performance and superior "certification" at the time of the IPOs. Many of the major venture capital firms in Japan are subsidiaries of securities firms that may face a conflict of interest when underwriting the venture capital-backed issue. In Japan, we find the long-run performance of venture capital-backed IPOs to be no better than that of other IPOs, with the exception of firms backed by foreign owned or independent venture capitalists. When venture capital holdings are broken down by their institutional affiliation, we find that firms with venture backing from securities company subsidiaries do not perform significantly worse over a three-year time horizon than other IPOs. On the other hand, we find that IPOs in which the lead venture capitalist is also the lead underwriter have higher first-day returns than other venture capital-backed IPOs. The latter result suggests that conflicts of interest influence the initial pricing, but not the long-term performance, of initial public offerings in Japan.
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