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The initial and long‐run returns of Japanese venture capital‐backed and non‐venture capital‐backed IPOs

Berna Kirkulak (Department of Business Administration, Faculty of Business, Dokuz Eylul University, Izmir, Turkey)

International Journal of Managerial Finance

ISSN: 1743-9132

Article publication date: 4 April 2008




The purpose of this paper is to examine initial and long‐run returns of Japanese IPOs in particular venture capital (VC)‐backed and non‐VC‐backed. The main research focus is on the performance of VC‐backed companies.


This paper presents a comprehensive long‐run performance analysis. As such, it provides evidence using two performance methods: cumulative abnormal returns (CARs) and buy‐and‐hold return (BHARs). This paper uses updated data from 1998 through 2001 and presents a deeper understanding for the long‐run returns of Japanese IPOs.


The findings show that there is no statistically significant difference in the initial returns of VC‐backed and non‐VC‐backed companies. The evidence is inconsistent with the VC certification hypothesis that venture capitalists certify the true value of the firm and therefore reduce underpricing. Further, Japanese IPOs underperform in the long‐run. The fads hypothesis is applicable to explain the poor long‐run performance. The results suggest that although VC‐backed companies have high initial returns, they perform significantly worse over a three‐year time horizon than non‐VC‐backed companies.

Research limitations/implications

An examination of the lock‐up agreements is necessary to understand negative returns. The results of this paper provide a good starting point for such a study.

Practical implications

This paper highlights the stock returns of VC‐backed and non‐VC‐backed companies. It is hoped that investors and academics will benefit from the outcome of the current paper.


To date, there is no comprehensive study on the Japanese IPO market applying both CAR and BHAR long‐run measurements. This paper applies both measurements. Further, this is the first study of the long‐run performance of Japanese firms going public in Mothers and in Hercules stock markets.



Kirkulak, B. (2008), "The initial and long‐run returns of Japanese venture capital‐backed and non‐venture capital‐backed IPOs", International Journal of Managerial Finance, Vol. 4 No. 2, pp. 112-135.



Emerald Group Publishing Limited

Copyright © 2008, Emerald Group Publishing Limited

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