The dark side of independent venture capitalists: Evidence from Japan

Using Japanese firms that went public during the period 1998-2006, we find that independent venture capitalist-backed IPO firms are significantly younger and smaller than IPO companies backed by venture capital firms that are subsidiaries of financial institutions. Independent venture capitalists tend to make firms go public on stock exchanges with less strict listing requirements. Importantly, young and small IPO firms listed on exchanges with less strict requirements experience significantly larger underpricing and poorer long-term performance. These results suggest that finance-affiliated venture capitalists are less myopic and prohibit immature firms from going public. JEL Classification: G24; G32