Venture Capital Syndication and IPO Underpricing

Abstract

This paper investigates the relation between Venture Capital (VC) syndication and initial public offering (IPO) underpricing by using financial data from Japanese emerging markets over the period 2001-2009. In particular, we verify the certification hypothesis whether VC syndications ensure the IPO firm's quality. We find that VC syndicate-backed ventures are less underpriced than VC single-backed ventures. Specifically, as the number of syndicate investment increases, IPO underpricing becomes lower. But, we can not present that the more the number of VC which consisted of 1st VC syndication, the lower IPO underpricing becomes. That is, we support the certification hypothesis that VC syndications ensure the IPO firm's quality. Therefore, VC syndication ensures the IPO firm's quality.