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Who provides a certification effect? Evidence from IPOs on the ...

Who provides a certification effect? Evidence from IPOs on the ...

Who provides a certification effect? Evidence from IPOs on the

ong>Whoong> ong>providesong> a ong>certificationong> ong>effectong> ong>Evidenceong> ong>fromong> ong>IPOsong> on the JASDAQ, MOTHERS and HERCULES ∗ ARIKAWA Yasuhiro † & IMAD’EDDINE Gael ‡ 15, August 2006 Abstract The purpose of this paper is to identify which agent can certify the offering price in the IPO process in Japan. The common literature has identified the Venture Capitalist as potential candidates and the top tiers underwriters. We test the impact on the underpricing of those players on 474 ong>IPOsong> and also on a smaller sample using only 248 VC-backed ong>IPOsong>. We find that only the largest top four VCs have a significant negative impact on the underpricing, and that the top three underwriters have a significant positive impact. This means that in the IPO activity of smaller firms the oligolistic nature of the VC industry and the underwriting industry explain a significant part of the underpricing. 1 Introduction The initial public offering (IPO) is usually associated with an underpricing: a huge first day return. This ”money left on the table” can represent a large amount. For example Jimos Co introduced in march 2004 left three millions euros on the table representing an appreciation of 35% in the end of the IPO day, while MP technologies share appreciated by 100% at the first day closing price. That means MP technologies ”left on the table” almost the same amount of the IPO: nine millions euros. The underpricing puzzle has drawn a lot of attention and among common explanations we can quote the asymmetry of information between insider of a firm and outside investor. One answer to the asymmetry problem is the ong>certificationong> by a third agent. When firms raise capital, the ong>certificationong> ong>effectong> is mainly attributed to the underwriter, but when it comes to ong>IPOsong> venture capitalists can also play a role. Since the internet bubble venture capital activity has drawn an increasing attention. There are several examples of policies intended to create or develop a venture capital industry. The redundancy of declarations and reports reveals the focus but also the difficulties of spreading the initiatives throughout the whole economy. Those general facts are beyond the scope of this paper. We will focus on the role of venture capitalist in the IPO process, but this cannot be done without a consideration to the underwriter. ∗ We would like to thank Pr Cousin, Pr De Bodt, Pr Lobez of Lille2 University and also the participants of the AFFI December 2005 Meeting in Paris and the participants of the Insitute of Financial Studies of Waseda University Seminar. All remaining errors are ours † Graduate School of Finance, Accounting and Law, Waseda University ‡ Laboratoire GERME, University of Lille 2 1

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