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Monitoring Role of Venture Capital in the Initial Public Offerings: Evidence from Korea

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  • Chi-Seung Song
  • Youngjoo Lee

Abstract

Because the government has initiated the development of venture capital firms in Korea, independent venture capital firms have been significantly influenced by government regulations and interventions; in contrast, corporations have made venture investments internally to avoid the regulations. This study investigates whether the Korean institutional environment harms the monitoring role of independent venture capital firms, while it does not significantly impact corporate venture capital firms. In an IPO setting, we find that earnings management (long-term performance) significantly decreases (increases) with the ownership of corporate venture capital firms. However, we do not find a significant relation between the ownership of independent venture capital firms and earnings management or long-term performance. The results suggest that Korean independent venture capital firms do not play a role in monitoring their investee companies; in contrast, corporate venture capital firms play a monitoring role.

Suggested Citation

  • Chi-Seung Song & Youngjoo Lee, 2018. "Monitoring Role of Venture Capital in the Initial Public Offerings: Evidence from Korea," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 54(10), pages 2382-2399, August.
    • Handle: RePEc:mes:emfitr:v:54:y:2018:i:10:p:2382-2399
    DOI: 10.1080/1540496X.2017.1399121
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    Cited by:

    1. Yang, Daecheon & Koo, Jeong-Ho & Kim, Jaemin, 2023. "The role of venture capitalist monitoring in mitigating cost stickiness: Evidence from Korea's IPO market," Finance Research Letters, Elsevier, vol. 52(C).
    2. Lin, Boqiang & Xie, Yongjing, 2024. "The role of venture capital in determining the total factor productivity of renewable energy enterprises: In the context of government subsidy reduction," Energy Economics, Elsevier, vol. 132(C).

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