This study explores the certification role of venture capitalists in the process of going pubic. This role of venture capitalist is empirically examined by utilizing 244 firms listed on the KOSDAQ market from July 1996 to May 2000. In order to examine the certification role of venture capitalists, we classify the sample into two groups: venture capital-backed firms and nonventure capital-backed firms. Using t-test, the difference on initial returns, business history, venture capitalist's holding between two groups after listing on KOSDAQ is analyzed.
The major results of this thesis are as follows. First, we find that initial excess returns of two groups on the first trading day are not significantly different. However, as the time after the listing day passes, venture capital-backed firm's excess return statistically shows higher than nonventure capital-backed firm's abnormal return. In KOSDAQ's IPOs market, venture capitalists could not reduce the information asymmetry between investors and issuing firms. This finding is different from the results of the existing studies which exhibited the difference between venture capital-backed firms and nonventure capital-backed firms in the US IPOs market.
Secondly, we explore the grandstanding effect, which is the hypothesis suggested by Gompers(1996). He argues that venture capital-backed firms will go public earlier than nonventure capital-backed firms. Our empirical analysis shows that the business history of venture capital-backed firms is shorter than that of nonventure capital-backed firms. Therefore, our result documents that the grandstanding phenomenon appears in Korea. The firms which KTB(Korea Technology Bank), Korea's largest venture capital firm, backed went public earlier than those backed by other venture capital firms. This result is different from Gompers(1996).
Thirdly, this study also investigates the changes of venture capitalists' holdings between KTB-backed firms and other venture capitalist-backed firms before and after going public in order to analyze the signaling effect. The holdings of KTB-backed firms are decreased more than those of other firms. This finding is different from Gompers(1996) which more reputable venture capitalists would not sell their holdings after IPOs.