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Federal Reserve Bank of New York
Staff Reports
Institutional affiliation and the role of venture capital: evidence from initial public offerings in Japan
Yasushi Hamao
Frank Packer
Jay Ritter

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.

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Yasushi Hamao & Frank Packer & Jay Ritter, Institutional affiliation and the role of venture capital: evidence from initial public offerings in Japan, Federal Reserve Bank of New York, Staff Reports 52, 01 Nov 1997, revised 01 Sep 1999.
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Note: For a published version of this report, see Yasushi Hamao, Frank Packer, and Jay R. Ritter, "Institutional Affiliation and the Role of Venture Capital: Evidence from Initial Public Offerings in Japan," Pacific-Basin Finance Journal 8, no. 5 (October 2000): 529-58.
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Keywords: Venture capital; Japan
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