Abstract
This article empirically examines the relationship between the underwriting spread of initial public offerings and the investment of security company-affiliated venture capital in Japan. The level of underwriting fee is negatively related to ownership by lead underwriter-affiliated venture capitals, while it is positively or not negatively related to ownership by the other venture capitals. This result suggests that lead underwriter-affiliated venture capitals provide their parent security companies with information regarding new issues.
Acknowlegement
I thank Hideki Hanaeda, Takashi Kaneko, Masaru Konishi, Kenji Kutsuna, Hideo Okamura and seminar participants at Hitotsubashi University for helpful comments. Financial assistance is acknowledged from Japan Security scholarship foundation.
Notes
1 Torstila (2003) revealed that 95% of the IPOs in Hong Kong and 86% of the IPOs in India have a gross spread of 2.5%, while 89% of the Malaysian IPOs have gross spreads of 2%.
2 Factors include issuer-specific risk and long-term relationship between the underwriter and issuer (James, 1992).
3 Roosenboom and Goot (2006) show that stock option grants can be seen as corporate governance instruments.
4 Hamao et al. (2000) verified the influence of institutional affiliated venture capital firms on under-pricing at the time of IPO.
5The major security companies are the top three underwriters.