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

Abstract

Pacific-Basin Finance Journal 8 (2000) 529-558. doi:10.1016/S0927-538X(00)00026-32016-03-04T18:48:28

The effects of venture capitalist affiliation to underwriters on short- and long-term performance in French IPOs

“…Megginson and Weiss (1991), for example, find lower initial returns (e.g., underpricing) for VC-backed IPOs. Hamao, Packer and Ritter (2000), however, find that VC-backed IPOs are associated with a higher initial return, whereas Barry et al (1990) show no significant difference between VCbacked and non-VC-backed IPOs. Similarly, Jain and Kini (1995) show that US VC-backed IPOs have a higher operating performance than non-VC-backed IPOs over a three year period following the IPO date, in line with findings by Brav and Gompers (1997).…”

“…1 Rindermann (2003) analyses 303 IPOs in the French Nouveau Marché, the German Neuer Markt, and the British techMARK from 1996 to 1999, and finds weak evidence supporting the positive effects of VC backing on both the operating and market performance of portfolio firms. Hamao et al (2000), however, find that long-term performance of Japanese VC-backed IPOs is no better than that of other IPOs. Therefore, the understanding of the effects of VCs on short-and long-term performance of VC investors in IPO firms remains an empirical issue.…”

“…For example, Gompers and Lerner (1998) and Hamao et al (2000) suggest that conflicts of interest between underwriters and investors in VC-backed IPOs may result in a worsening of the long-term performance. In a more recent paper, Hoberg and Seyhun (2005) provide evidence that lead IPO underwriters and VCs collaborate at the expense of other IPO investors.…”

“…those that are subsidiaries of banks, insurance companies and other savings institutions (Jelic et al, 2005;Li & Masulis, 2005). These institutions may have different time horizons for investing (Jelic et al, 2005) or different objectives when compared to private equity firms in the US (Hamao et al, 2000), and thus may play different roles in IPOs. Second, this paper takes into account the institutional characteristics of the French venture capital market, the second largest European market after the UK in terms of investment (EVCA, 2003), and extends prior research by focusing on the IPO performance effects of VCs affiliated to underwriters.…”

Group affiliation and the performance of IPOs in the Indian stock market

“…To alleviate the costs associated with the IPO decision, firms often build their reputation by obtaining different types of quality certifications to signal their true value to the market. Some popular certification strategies include employing a reputable auditor (Beatty, 1989), associating with a venture capitalist with an established track record (Barry et al, 1990), hiring a well-known underwriter (Carter et al, 1998), attracting strong institutional affiliation (Hamao et al, 2000), and recruiting a good quality management team (Chemmanur and Paeglis, 2005). 1 One form of certification, popular in many countries where family-controlled businesses play a dominant role in the economy, is affiliation to a business group.…”