ABSTRACT
This chapter reviews the literature regarding underpricing, and the long-term performance mechanisms of the certification and the value-adding role provided by venture capitalist. Based on theoretical discussion, the author derives the hypotheses for our empirical tests, too. The author deals with how the information asymmetry between investors and issuers and the hot issue market phenomenon can affect underpricing and how the disappearance of information asymmetry and the timing of IPOs can influence long-term performance. The author deals with the certification and value-adding role of venture capitalists, including internal mechanisms to minimise uncertainty, monitoring and screening functions, and external activities. The author also discusses the impact of venture capitalists’ institutional affiliation with banks and security companies on the performance of IPO firms. The author introduces the universal banking perspective and discusses how it applies to the certification and conflict of interests that a financial institutions-affiliated VC may cause. Following the literature review, the author formulates twelve testable hypotheses.
