Institutional Affiliation and the Role of Venture Capital: Evidence from Initial Public Offerings in Japan

50 Pages Posted: 15 Oct 2006

See all articles by Yasushi Hamao

Yasushi Hamao

Center on Japanese Economy and Business; University of Southern California - Marshall School of Business - Finance and Business Economics Department

Jay R. Ritter

University of Florida - Department of Finance, Insurance and Real Estate

Frank Packer

Bank for International Settlements (BIS)

Date Written: November 1998

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, with the exception of firms backed by foreign owned or independent venture capitalists. 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 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 initial 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.

JEL Classification: G15, G24, G32

Suggested Citation

Hamao, Yasushi and Ritter, Jay R. and Packer, Frank, Institutional Affiliation and the Role of Venture Capital: Evidence from Initial Public Offerings in Japan (November 1998). FRB of New York Staff Report No. 52. Available at SSRN: https://ssrn.com/abstract=937370 or http://dx.doi.org/10.2139/ssrn.937370

Yasushi Hamao (Contact Author)

Center on Japanese Economy and Business ( email )

3022 Broadway
New York, NY 10027
United States
310-717-0503 (Phone)

University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )

Marshall School of Business
Los Angeles, CA 90089
United States
310-717-0503 (Phone)

Jay R. Ritter

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611
United States
(352) 846-2837 (Phone)
(352) 392-0301 (Fax)

HOME PAGE: http://bear.cba.ufl.edu/ritter

Frank Packer

Bank for International Settlements (BIS) ( email )

CH-4002 Basel, Basel-Stadt
Switzerland
4161 280 8449 (Phone)

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