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Institutional affiliation and the role of venture capital: evidence from initial public offerings in Japan

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  • Yasushi Hamao
  • Frank Packer
  • Jay 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 lower underpricing at the time of the IPOs. In Japan, we find the long-run performance of venture capital-backed IPOs to be no better than that of other 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. When venture capital holdings are broken down by their institutional affiliation, we find that firms with venture backing from securities company subsidiaries perform significantly worse over a three-year time horizon than other IPOs. We also find that IPOs in which the lead venture capitalist is also the lead underwriter have higher initial returns than other venture capital-backed IPOs, and sell at higher P/E ratios than comparable listed stocks. These results suggest that conflicts of interest influence the pricing and long-run performance of initial public offerings in Japan.

Suggested Citation

  • Yasushi Hamao & Frank Packer & Jay Ritter, 1998. "Institutional affiliation and the role of venture capital: evidence from initial public offerings in Japan," Research Paper 9807, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednrp:9807
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    More about this item

    Keywords

    Business enterprises - Japan; Venture capital; Japan;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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