한국생산성학회

This study investigates the effect of investment of venture capital(hereafter, VC) on the underpricing of initial public offerings(hereafter, IPO). In order to examine the certification role of VC involvement in the IPO market, this paper compare the stock price response to VC backed IPOs and to non-VC backed IPOs. Since VCs expect to recoup their investment through successful IPOs, they have incentives to provide administrative, marketing and managerial support to the issuing firm. They can also reduce the agency problems, such as moral hazard, by monitoring large shareholders. According to the certification theory, the involvement of VC investment sends a positive signal to the market regarding the quality of the issuing firm and therefore reduces the information asymmetry between the insider and outsider of the firm. The mitigated information asymmetry among market participants results in a higher offering price and a decrease in the IPO underpricing. With respect to the certification role of VCs, precedent research provides mixed results. One of the shortcomings of previous studies investigating the role of VCs in Korea is that their sample periods- mostly before 2010- include frequent changes in regulations such as market making and put-back option regulations that can affect the extent of IPO underpricing. These regulations tend to worsen the IPO underpricing phenomenon. Using the sample period between 2011 to 2015, when the market making and put-back option regulations did not operate, this paper can avoid the bias stemming from the regulation change. Our empirical results show that market-adjusted initial returns for VC backed IPO stocks are not lower than those for non-VC backed IPO stocks. We also find that cumulative abnormal returns for the 90-day period after IPO have upward trend for non-VC backed firms while, for VC-vacked firms, they decrease for the first fifteen days and could not recover to the level of initial day returns. These findings reveal that the financial and managerial support of venture capital in the issuing firms does not serve the certification role in Korea, implying that Korea's venture capital market does not function with the same level of developed countries. This study suggests that in order to settle down the proper venture system―investment, exit, re-investment of venture capital―the external growth of venture capital investment should be accompanied by the positive role of venture capital in the IPO market.