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Grandstanding and Venture Capital Firms in Newly Established IPO Markets

  • Nobuhiko Hibara

    (University of Saskatchewan)

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    The grandstanding theory posits that young venture capital firms (VCs) will seek to build their reputations by taking ventures public early. In this study, we examine this theory in the Japanese IPO market. With the introduction of MOTHERS and NASDAQ Japan in 1999 and 2000, respectively, with the explicit intent of catering to smaller and younger companies, we are able to examine the influence of these new markets on grandstanding and the IPO process. We find that young lead VC-backed ventures go public at a younger age than mature lead VC-backed ventures and that young lead VC-backed ventures are more underpriced. However, we do not find that young lead VCs have relatively lower equity stakes at IPO. This latter finding is most likely a result of the introduction of the new markets.

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    File URL: http://jefsite.org/RePEc/pep/journl/jef-2004-09-3-g-hibara.pdf
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    Article provided by Pepperdine University, Graziadio School of Business and Management in its journal Journal of Entrepreneurial Finance and Business Ventures.

    Volume (Year): 9 (2004)
    Issue (Month): 3 (Fall)
    Pages: 77-93

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    Handle: RePEc:pep:journl:v:9:y:2004:i:3:p:77-93
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    Web page: http://bschool.pepperdine.edu/jef

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    1. Black, Bernard S. & Gilson, Ronald J., 1998. "Venture capital and the structure of capital markets: banks versus stock markets," Journal of Financial Economics, Elsevier, vol. 47(3), pages 243-277, March.
    2. Gompers, Paul A., 1996. "Grandstanding in the venture capital industry," Journal of Financial Economics, Elsevier, vol. 42(1), pages 133-156, September.
    3. Gifford, Sharon, 1997. "Limited attention and the role of the venture capitalist," Journal of Business Venturing, Elsevier, vol. 12(6), pages 459-482, November.
    4. Barry, Christopher B. & Muscarella, Chris J. & Peavy, John III & Vetsuypens, Michael R., 1990. "The role of venture capital in the creation of public companies*1: Evidence from the going-public process," Journal of Financial Economics, Elsevier, vol. 27(2), pages 447-471, October.
    5. Rock, Kevin, 1986. "Why new issues are underpriced," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 187-212.
    6. Ritter, Jay R., 1987. "The costs of going public," Journal of Financial Economics, Elsevier, vol. 19(2), pages 269-281, December.
    7. Megginson, William L & Weiss, Kathleen A, 1991. " Venture Capitalist Certification in Initial Public Offerings," Journal of Finance, American Finance Association, vol. 46(3), pages 879-903, July.
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