Corporate Ownership & Control / Volume 7, Issue 4, Summer 2010РАЗДЕЛ 3КОРПОРАТИВНОЕ
УПРАВЛЕНИЕ В ЯПОНИИ
SECTION 3
CORPORATEGOVERNANCE:JAPANINITIAL PUBLIC OFFERING INTENTION: EVIDENCE FROMSTART-UP FIRMS IN JAPANYuji Honjo*, Kenji Kutsuna**
Abstract
This paper explores the initial public offering (IPO) strategy of start-up firms. Using an original surveyof start-up firms in the Japanese manufacturing and information service industries, we investigate
what factors are associated with the intention to go public. It is found that among start-up firms, thoseinvesting more heavily in research and development (R&D) are more likely to wish to go public.
Furthermore, we provide evidence that spin-offs and family businesses are less likely to have IPO
intentions, and that entrepreneur-specific characteristics affect IPO intentions, with younger andhighly educated entrepreneurs tending to desire to go public.
Keywords: entrepreneur; initial public offering; new stock market; research and development; startup* Corresponding author, Faculty of Commerce, Chuo University, 742-1 Higashinakano, Hachioji, Tokyo 192-0393, Japan, Email: yhonjo@tamacc.chuo-u.ac.jp** Graduate School of Business Administration, Kobe University, 2-1 Rokkodai, Nada, Kobe 657-8501, Japan, E-mail:kutsuna@kobe-u.ac.jp

1. Introduction
In recent years, new firm creation has become one of
the most important issues --- especially in stagnating
developed economies. It is expected that the
emergence of innovative firms promotes economic
revitalization and development through innovationand job creation. On the other hand, it is often argued
that among start-up firms, only a few high-growthfirms are essential contributors to economic growth.
According to Jovanovic (2001), in the United States,

four giant firms --- Microsoft, Cisco Systems, MCI,
and Dell --- were less than twenty years of age on theend of August 1999, and their value added up to 12 or
13 percent of gross domestic product (GDP) at thattime. Even though most start-up firms do not achieve
rapid growth, a small proportion of start-up firms
often play a major role in economic revitalization anddevelopment. These firms tend to outperform theircounterparts by a wide margin, and will, it is hoped,
stimulate future economic growth. For this reason,
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governments, including that of Japan that has sufferedfrom deflation, have paid more attention to the role ofstart-up firms with high-growth potential, which areseen as pioneers in the development of new businessfields in stagnating economies.
Start-up firms with high-growth potential are
expected to contribute to innovation and job creation.
In fact, recent public attention has been paid to initialpublic offering (IPO) firms --- more specifically,
Internet IPO firms, such as Google and Yahoo --- thathave remarkably expanded their businesses. Although
going public is not a stage that all firms eventuallyreach, it must be often a crucial stage in firm growth.
Some entrepreneurs (or founders) have an opportunity
to be rewarded for their initial efforts through theeventual sale of their firms. In addition, investors are
attracted to high-growth firms with IPO intentions
because of the potential for high capital gain. In theserespects, IPOs have become one of the most criticalissues not only for entrepreneurs but also for investors,
including venture capitalists and business angels.
This paper explores the IPO strategy of start-up
firms. While many firms still remain privately heldand do not seek to go public, some firms pursue thepossibility of raising funds through IPOs to expand
their businesses. In this paper, using an original
survey of start-up firms in the Japanese manufacturing
and information service industries, we investigate
what factors are associated with the intention to go
public. It is found that among start-up firms, thoseinvesting more heavily in research and development(R&D) are more likely to wish to go public. In
addition, entrepreneur-specific characteristics andfirm types are found to relate to IPO intentions. A
better understanding of what actually has an influence
on IPO intentions, and of what types of firms orentrepreneurs have the propensity to go public, canhopefully fulfill a role in fostering micro-level
contributors to future economic growth.
The remainder of the paper is organized asfollows. The following section introduces related
literature and explains the research background.
Section 3 discusses the theoretical framework andhypotheses development, and Section 4 explains the
sample of start-up firms used in the analysis. After
describing estimation methods in Section 5, we
present estimation results in Section 6. Finally, we
provide some concluding remarks.
2. Literature review and researchbackgroundTo date, a number of studies in finance literature haveinvestigated firms‘ decision to go public. Although
the decision to go public has been simply considered a
stage in the growth process, this decision is actually acomplex one, and the choice of going public orstaying private is due to a variety of reasons. To sum
up, previous studies have addressed that the decision
to go public depends on the trade-off between thebenefits and costs of going public (e.g., Pagano, 1993;
128

Pagano and Röell, 1998; Chemmanur and Fulghieri,
1999; Boot et al., 2006). Among them, Zingales (1995)
emphasizes the benefits of going public:
diversification, the possibility of equity financing
beyond the initial entrepreneurs‘ limited wealth, a lesscostly access to the capital market, an increased
liquidity of the firms‘ share, and some outsidemonitoring. In addition, Röell (1996) noted thereasons for going public: access to new finance,enhanced company image and publicity, motivating
management and employees, cashing in, andexploiting mispricing. 23 In contrast, going public
entails additional costs, such as the registration,
underwriting, underpricing, and annual disclosure
costs. Pagano et al. (1998) also found that adverse
selection, administrative expenses and fees, and lossof confidentiality are costs of going public.
Although there are considerable arguments on
reasons for IPOs, only a few empirical studies havedirectly examined the determinants of IPOs. The
pioneering work, Pagano et al. (1998), estimated thedeterminants of the decision to go public by using aproprietary database of private Italian firms andcomparing these firms with public Italian firms.
Based on the results of IPOs, they argued that thelikelihood of an IPO increases with company size andthe industry‘s market-to-book ratio. Whereas theirresearch focused on the results of IPOs, it is unclear
what types of firms or entrepreneurs have thepropensity to go public.
In addition, from the viewpoint of entrepreneurs,
Brau and Fawcett (2006) examined motivations for
conducting IPOs by using an original questionnaire
survey in the United States. They found that chief
financial officers identify the creation of public sharesfor acquisitions as the most important motivation forgoing public. In contrast, they argued that lowering
the cost of capital and the pecking order of financing
are not among the most important reasons for
conducting IPOs. However, acquisitions do not seemto be the only reason for the IPO motivation --particularly in other countries, including Japan, where
mergers and acquisitions are not as popular as in the
United States.24 Moreover, Brau and Fawcett‘s results
are based on univariate analyses, including firms witha long history, and they do not control for
entrepreneur-specificcharacteristics,
suchasentrepreneurs‘ background,andfirm-specificcharacteristics, including firm age.25
23

More recently, Bodnaruk et al. (2008) pointed out thatshareholders‘ portfolio diversification is an important driverof the IPO process.
24
Matsuda et al. (1994) pointed out that while greater
proportions of U.S. firms prefer to use their money
primarily for the purchase of other companies, much higher
proportions of Japanese firms intend to put most of their
new funds into physical plant and R&D.
25
In fact, much literature has emphasized the effects ofentrepreneurs‘ (or founders‘) characteristics on thestrategies and performance of firms (e.g., Nelson, 2003;
Florin, 2005). While, as Wiklund et al. (2003) pointed out,Corporate Ownership & Control / Volume 7, Issue 4, Summer 2010

While Pagano et al. (1998) and Brau andFawcett (2006) examined the determinants andmotivations of IPOs, we highlight IPO intentions forstart-up firms. This paper extends research on thedeterminants of IPOs, by focusing on start-up firms
and IPO intentions. Although the emergence of IPO
firms with high-growth potential is expected toencourage economic growth, potential IPOs havebeen largely ignored in the literature. Given theimportance of potential IPOs as the source of future
economic growth, the ability to identify whether firms
seek to go public would be of interest to employees,
investors, and policy makers. In particular, highgrowth firms with IPO intentions attract investors,
including venture capitalists and business angels thatlook to IPOs to diversify their investment portfolios.
The motivations of entrepreneurs among start-up
firms are highlighted to identify which types of firms
or entrepreneurs have the propensity to go public, andthat information would provide further evidence on
the IPO mechanism.
On the other hand, as already mentioned, startup firms with high-growth potential are expected toencourage economic growth. In order to foster
innovative firms with high-growth potential, somedeveloped countries have introduced ―new stock
markets,‖ while taking into consideration the
NASDAQ market in the United States. For instance,
the Nouveau Marche (France), the Neuer Markt(Germany), and the Nuovo Mercato (Italy) have beenlaunched since the late 1990s. In these countries, thetrend toward the creation of new stock markets has
been apparent since the late 1990s. Most of thesemarkets mainly target innovative start-ups, and they
provide opportunities for raising equity finance. In
Japan, for example, MOTHERS (market of the highgrowth and emerging stocks) in Tokyo Stock
Exchange was opened in 1999 to provide easierfunding for emerging companies with high-growthpotential. 26 However, many, if not all, entrepreneurs
may have little expectation of equity financing
through the markets, partly because, as Black andGilson (1998) suggested, Japan has a bank-centeredfinancial system, rather than a stock market-centeredfinancial system.
Whereas most firms need funds to startbusinesses, there is no evidence that thosethe supremacy of the economic motive is taken for granted -- people act in ways to maximize their profit --- ineconomic literature, a more diverse view is relevant inentrepreneurship literature. Corporate strategies toward
IPOs may also depend on entrepreneurs‘ aspirations andcapabilities, and there is the possibility that IPO intentions
tend to reflect an outcome of entrepreneurs‘ personal
attributes.
26
In Japan, Sapporo Securities Exchange, Nagoya Stock
Exchange, Osaka Stock Exchange, and Fukuoka Stock
Exchange established new stock markets --- Ambitious,
Centrex, Hercules, and Q-board, respectively --- in order totarget innovative firms at an early stage of theirdevelopment.

entrepreneurs have indeed hoped for the creation of
new stock markets. 27 Whether new stock markets
operate more efficiently depends not only on
investors‘ supply side but also on entrepreneurs‘
demand side. Identification of innovative start-ups as
more likely to have an IPO intention would enhance
the legitimacy of the creation of new stock markets.
Although new stock markets tend to target innovative
start-ups, there is, as Yosha (1995) indicated, theprobability that young, innovative, and private firms
are reluctant to go public because of loss ofconfidentiality. Needless to say, the significant effectsof stock markets in fostering innovative start-ups
would to a large extent depend on the existence ofstrong and vibrant demand by entrepreneurs. In thispaper, therefore, we seek to shed some light onentrepreneurs‘ motivations, as to which entrepreneurs
are willing to go public among start-up firms and to
confirm the needs of new stock markets from their
viewpoint. An understanding of entrepreneurs‘
motivations is the first step and would be essential toevaluate the role of new stock markets introduced forinnovative firms with high-growth potential in somedeveloped countries. If the improvement of listing
requirements in the stock markets is needed topromote new businesses, then the IPO intentions ofstart-up firms, which reflect the potential demand forgoing public, provide important evidence of how
stringent the requirements of stock markets are onthese firms.
3. Theoretical framework and hypotheses
development
As discussed, previous literature has considered thatthe decision to go public depends on the trade-off
between the benefits and costs of going public.
According to the literature, it is conceivable thatfactors associated with more benefits than the current
value of a firm increase the intention to go public,
while those associated with more costs decrease thisintention. If the expected market value of the firm
after going public exceeds the current value through,as Zingales (1995) pointed out, diversification and thepossibility of equity financing beyond the initialentrepreneurs‘ limited wealth, then the firm seeks togo public. As Röell (1996) argued, for example,
access to new finance may be one of the mostimportant reasons for going public. It is consideredthat an entrepreneur is willing to go public when he or
she expects that an IPO realizes the value of the firmby financing due to new access to finance.

27

In Japan, a special-rule issues market of the over-thecounter (OTC) market was opened in July 1995 in order toenable young firms investing heavily in R&D to list theirstocks even though they ran deficits. However, only threefirms were listed in this market, which was closed andabsorbed into the original OTC market in December 1998.
In Germany, the Neuer Markt was closed in June 2003.

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Among start-ups, firms facing financially constraints
may tend to secure external sources of finance to raise
funds. In particular, innovative start-ups are likely toraise more funds because of large investments in
R&D, which may increase the value of the firm.
However, entrepreneurs may be discouraged withhigh interest rates or credit rationing due to theexistence of uncertainty and information asymmetries
between entrepreneurs and providers of finance.
Perhaps, the existence of uncertainty and information
asymmetries is particularly severe for innovative
start-ups because of the difficulty involved in
evaluating new businesses and technologies.
Therefore, innovative start-ups may seek to accessequity markets in order to acquire alternative sourcesof finance. Also, equity financing has an advantage offinancing highly risky business activities partly
because equity holders can receive a large capital gain
if success is achieved. On the other hand, corporate
policies and objectives may relate to IPO intentions,irrespective of the expected market values after going
public. Even though entrepreneurs receive theproceeds from the eventual sale, some of them indeed
are not willing to go public, preferring that they retain
corporate control. In fact, many small businesses tend
to be oriented toward maintaining the status quo.
Therefore, IPO intentions may decrease due toentrepreneurs‘ attitudes toward risk of loss ofcorporate control. Furthermore, corporate strategies
toward IPOs may depend on entrepreneur-specificcharacteristics, while, as Davidsson and Wiklund(2000) argued, growth motivations differ acrossentrepreneurs, and the small business managers‘
attitudes toward expanding their firms affect firm
growth.
Consequently, it can be concluded that IPO
intentions depend on the expected utilities ofentrepreneurs, including the market values by
profitability for the post-IPO outcomes. Let Udenote the difference of the expected utility before
and after the IPO. If the utility increases through the
IPO, then the firm has an incentive to go public. It is
assumed that U is a linear function of a vector ofvariables, X, which indicates factors relating to theutility through the IPO. That is, we writeU    X  e,(1)

where  is a constant term,  (vector) is aparameter to be estimated, and e represents an error
term. Here, the IPO intention of the firm, IPO, isdefined as a binary variable, since the IPO intention isan unobserved latent variable. The IPO intention is
written as follows:

The variable, IPO, takes the value one if the firm
has the intention to go public, and takes the value zerootherwise.
By estimating the regression model, we identify
the determinants of IPO intentions among start-up
firms. 28 In the following subsections, we discuss
several hypotheses concerning the vector of variables,X.
3.1. Innovative activities
Many previous studies have argued that adverse
selection and moral hazard problems due toinformation asymmetries hinder external financing ofhighly risky business activities, including R&D (e.g.,
Arrow, 1962; Himmelberg and Petersen, 1994).
Among them, Carpenter and Petersen (2002) argued
that new equity financing has several advantages overdebt, and for high-tech firms, the limited collateralvalue of assets, together with adverse selection, moral
hazard, and financial distress cause the marginal costof debt to increase rapidly with leverage. 29 Even
though adverse selection and moral hazard problems
due to information asymmetries hinder externalfinancing of highly risky business activities, capitalgain after going public is expected to offset high riskfor providers of finance. Deeds et al. (1997)
emphasize that firms are usually required to access the
public equities market by issuing an IPO to raise thesignificant sums of capital required to pursue
extensive R&D projects or to finance rapid growthand expansion. Moreover, as Stoughton et al. (2001)
and Brau et al. (2003) pointed out, the decision to go
public provides a signal to investors and customers
and, particularly, this aspect may be important forfirms in high-tech industries where there is asignificant amount of uncertainty about the quality of
their products.
On the other hand, as already introduced, Yosha(1995) argued that young, innovative, and private
firms are reluctant to go public, fearing the reaction of
established competitors to the disclosed information.
As also suggested by Campbell (1979), loss ofconfidentiality may reduce the value of the firm. In
this regard, innovative start-ups do not wish to go
public, preferring that they avoid loss ofconfidentiality. This notion implies that innovative
start-ups are less likely to go public. In contrast,
Deeds et al. (1997) found a positive relationshipbetween the total amount of capital raised by a firm‘s
IPO and the scientific capabilities of the firm in thebiotechnology industry of the United States. Honjo(2001) also found that firms investing heavily in R&D
28

1 if U  0
IPO  0 otherwise.

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For an alternative model formulation, see Honjo (2001).
Carpenter and Petersen argued that insiders have muchbetter information than outsiders about the prospects of thefirm‘s investment. Even if firms could educate outsiders,appropriability problems may induce firms to limit theamount of information they are willing to provide to
suppliers of funds.
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are more likely to have IPO intentions, using a sampleof electrical manufacturing firms in Japan.
In practice, some empirical studies have foundthat intangible assets, such as technologies, yield
more market value (e.g., Cockburn and Griliches,
1988; Hall, 1993). If the expected value after going
public exceeds costs including loss of confidentiality,
then the IPO intention increases for innovative startups. As already mentioned, entrepreneurs may expect
greater reliance on equity financing rather than on
debt financing about highly risky business activities,
including R&D. Therefore, we hypothesize thatamong start-up firms, those investing more heavily in
R&D are more likely to wish to go public. This would
suggest that new stock markets, which are expected toprovide funds for innovative start-ups, are neededfrom the viewpoint of entrepreneurs.
3.2. Financial constraints
Diversified equity financing beyond the initial funds
is required when firms raise funds to overcome
financial constraints. In particular, start-up firms tend
to face financial constraints due to information
asymmetries because of a limited business history.
Given that access to equity markets through IPOs
mitigates financial constraints, firms may be able toobtain a stronger bargaining position against banks by
the availability of an alternative source of funds. As
already mentioned, access to new finance is often
cited as a reason for going public. Pagano et al. (1996)
indeed found that going public reduces the cost of
credit. By overcoming financial constraints,
entrepreneurs expect their firms‘ business to expand
and gain more profits, which results in the highvaluation of firms by reducing the cost of credit or
expanding their businesses. Start-up firms withinsufficient funds need to gain access to a source offinance alternative to banks. It is considered that startup financial constraints relate to IPO intentions, andstart-up firms that cannot achieve a sufficient initialfund supply have an incentive to go public. We
hypothesize that firms having faced financial
constraints at start-up are more likely to have IPO
intentions.
3.3. Corporate control
By contrast, the disadvantages of IPOs may prevent
entrepreneurs from going public. Some entrepreneurs
desire to retain privately held status in order tomaintain control of their firms. For instance, Field andKarpoff (2002) pointed out that many firms deploy
takeover defenses when they go public in the UnitedStates, and found that 53% in their sample have atleast one takeover defense at the time of their IPO.
Although, in practice, hostile takeovers in Japan thenwere not as prevalent as in other countries, such as theUnited States, the possibility of takeovers may reducethe incentive to go public for some entrepreneurs.
Even though the values of firms are expected toincrease after going public, firms that wish to avoid
the risk of loss of corporate control, including hostile
takeovers, may have less intention to go public. Thus,
we hypothesize that firms that wish to avoid the riskof loss of corporate control are less likely to have IPO
intentions.
3.4. Entrepreneur-specific characteristics
In addition to the above factors, the motivations of
IPOs vary among entrepreneurs. As alreadymentioned, much literature has emphasized the effects
of entrepreneurs‘ characteristics on the strategies andperformance of firms. Particularly for start-up firms,
IPO intentions may depend heavily on entrepreneurspecific characteristics. With respect to entrepreneurspecific characteristics, for example, younger
entrepreneurs may have growth aspirations thoroughIPOs, since perhaps they tend to believe morepotential to gain more benefits. As mentioned later,
data on some entrepreneur-specific characteristics are
obtainable from our questionnaire survey. The
variables for age, education level, and work
experience of the entrepreneur are included to identify
what types of entrepreneurs are willing to go public,
as well as to control for entrepreneur-specificcharacteristics.
3.5. Others
IPO intentions differ across firm types, including
differences in market conditions between industries,
and they may be associated with firm-specificcharacteristics. As explained later, our sample
includes two types of legal forms, a joint-stock
corporation and a privately limited company. A
privately limited company is a more simplified legal
form than a joint-stock corporation, and the behavior
and strategies of start-up firms may be different
between these two legal forms. In addition, somefirms in the sample have started businesses as a
subsidiary or an affiliated company of a large
corporation. Compared with independent firms, thesefirms may have less incentive to go public, partly
because they can raise funds from their parent
companies. Furthermore, traditional family businesses
may not wish to go public, since they have more needto retain their businesses rather than to expand them. 30

30

In addition to the above firm-specific characteristics, IPO
intentions may depend on the difference of start-up
financing between firms. In particular, some studies havehighlighted the vital role of venture capitalists and theperformance of venture capital (VC)-backed firms in thecreation of publicly traded firms (e.g., Lerner, 1994; Brav
and Gompers, 1997; Florin, 2005). Megginson and Weiss(1991), for example, compared VC-backed IPOs with acontrol sample of non VC-backed IPOs, and found that VC
backing lowers the costs of going public and maximizes net
proceeds. In the sample, however, only a few firms did
indeed raise funds from venture capital at start-up, and,131

Corporate Ownership & Control / Volume 7, Issue 4, Summer 2010
4. Data
In practice, it is difficult to obtain adequate data on
IPO intentions and the determinants from existingdata sources. 31 Despite the limitations of previous
literature on the IPO, little empirical data exist to
elucidate the IPO mechanism. Regarding the benefits
and costs of going public --- especially for
entrepreneurs‘ viewpoint --- empirical evidence
remains scarce. Since the data source needed to
implement our approach is not generally available, we
attempt to construct a data set through a questionnaire
survey named Survey on Management of Start-ups inJapan (Wagakuni Start-up Kigyo no Keiei Jittai ni
Kansuru Chosa). Using this data source, we capture
IPO intentions among start-up firms. Additionally, we
use the Census of Manufactures and Survey onSpecified Service Industries: Information Services tomeasure a variable for industry growth.
The name and address list for the questionnaire
survey was obtained in December 2001 from Tokyo
Shoko Research, Ltd. (TSR) that is a major credit
investigation company in Japan like Dun andBradstreet in the United States. The list consists of
5,684 firms founded during the period 1995-1997.32
These firms are joint-stock corporations (kabushikigaisha) and privately limited companies (yugengaisha) in the manufacturing and information service
industries of Japan.33 We asked a major transportationcompany, Sagawa Express Co. Ltd., to send out thehence, we do not examine whether VC finance at start-up
affects IPO intentions.
31
There are only a few existing data sources that provide
information on start-ups in Japanese industries. First, Nikkei
Venture Business Annual Report (Nikkei Venture Business
Nenkan) compiled by Nihon Keizai Shimbun, Inc. (Nikkei)
provides data on new ventures. Using this data source,
Honjo (2001) empirically examined IPO intentions in theJapanese electrical manufacturing industry. However, thissource includes not only start-up firms but also small firms
with a long history. In addition, whether or not the firm isregistered as a new venture in the data source is based
entirely on the judgment of Nikkei. Then, the Survey on
Business Start-ups in Japan (Shinki Kaigyo Jittai Chosa)compiled by the National Life Finance Corporation (NLFC)
provides data on start-ups annually. However, this source isrestricted to data only on firms financed by the NLFC.
32
The name and address list was obtained in 2001, but firms
founded during 1998-2001 were excluded from the sample.
The questionnaire survey was limited to firms that were atleast three years past their foundation, since several data,such as sales, were collected for the past few years. Anotherreason the survey was limited is that a few years wererequired until TSR had compiled data.
33
In addition to a joint-stock corporation and a privately
limited company, two types of partnerships (gomei-gaisha
and goshi-gaisha) and a sole proprietorship are available inJapan. Essentially, the number of these partnerships is much
lower than that of joint-stock corporations and privately
limited companies, and the existing data sources do not
sufficiently cover data on sole proprietorships. Therefore,
we collected data only on joint-stock corporations andprivately limited companies.

132

questionnaires to the firms in January 2002 and to
retrieve them in February 2002. As a result, answeredquestionnaires were received from 1,045 firms. 34
We construct a sample to estimate thedeterminants of IPO intentions among start-up firms.
As already mentioned, firms founded in the
manufacturing and information service industries
during 1995-1997 are targeted in the survey. However,since some firms were regarded as founded before orafter the observation period, 1995-1997, or could not
be regarded as founded during the period, these firms
were excluded from the sample. In addition, firms
from industries other than the manufacturing or
information service industries were excluded.
Moreover, all the firms did not necessarily answer all
the questions, and the number of observations
depends on variables used in the regression model.
Consequently, 522 start-up firms remained in thesample.35
In the questionnaire, we inquire about the IPO
strategy based on the following alternatives: (1) havealready gone public, (2) intend to go public within
one year, (3) intend to go public within a few years, (4)have not decided when the firm will go public but
intend to go public, (5) do not intend to go public, and(6) have not considered whether or not to go public.
Table 1 shows the ratio of each alternative for the IPO
strategy. Among the sample, only two firms (0.4%)
had already gone public. Even though the creation of
new stock markets has happened in Japan, thepercentage of the firms going public is remarkably
low. While, as is shown in Table 1, about a quarter ofentrepreneurs in our sample are willing to go public,
many entrepreneurs do not pursue IPOs. 36 By using
34

In response, 1,113 completed questionnaires werereturned. On the other hand, 223 questionnaires werereturned to us because the address was unknown. The others
were not returned even though the deliverers of Sagawa
Express visited each firm to retrieve the questionnaire.
Among the 1,113 returned questionnaires, 1,045 firms
answered at least one question.
35
We assessed whether there are response biases in the
distribution of industrial sectors (two-digit standard
industrial classification), based on the comparison between
our sample and data obtained from the Census of
Manufactures and Survey on Specified Service Industries:
Information Services. Although not completely tested, there
may be the possibility of bias in the distribution of several
industrial sectors, such as printing and chemical. We
estimated the regression models by using these industry
dummies, and by excluding the sectors of printing andchemical from the sample. Even when these estimations
were made, the relationships discussed in Section 6 were
not almost changed.
36
Similar tendencies have been seen in other surveys inJapan. According to Sakakibara et al. (2000), the ratio ofentrepreneurs with IPO intentions is 25.1% in a sample ofstart-ups in technology-oriented manufacturing industries.
Also, the Japan Small Business Research Institute (2003)
reports that the ratio is 14.1% in a sample of start-ups invarious industries, including manufacturing, transportationand communication, wholesale and retail trades, eating anddrinking places, and service.

Corporate Ownership & Control / Volume 7, Issue 4, Summer 2010

our sample of 520 firms from which two IPO firms
are excluded, the alternatives are classified into two
categories: ―intention to go public‖ and ―no intention
to go public.‖ While alternatives (2), (3), and (4) are
regarded as ―intention to go public,‖ alternatives (5)and (6) are regarded as ―no intention to go public.‖ As
indicated in Table 1, the number of firms that have
IPO intentions (i.e., IPO = 1) is 126 among the 520
firms, and the ratio is 24.2% in the sample.
(Insert Table 1 here)
In practice, start-up firms whose entrepreneurs
are willing to go public may tend to expand theirbusinesses. That is, the performance of start-up firms
may vary across the IPO intentions. Using the growth
rates of employment and sales, we thus verify thedifference in the firms‘ performance according to the
IPO intention. We inquire about the numbers of
employees and board members both at that time andat start-up. The growth rate of employment is definedas the difference of the logarithms of the number of
employees plus board members between the two
periods, divided by firm age. On the other hand, we
inquire about sales for the preceding three years. The
growth rate of sales is defined as the difference of thelogarithms of sales between the two years, divided by
two.
Table 2 shows the descriptive statistics of thegrowth rates according to the IPO intention. Since
Table 2 excludes firms for which the numbers of
employees and board members or sales were notobtainable, the total numbers of observations varyacross the growth rate measures, and they are 501 and
478, respectively. On average, start-up firms with IPO
intention expand employment at 15.1% and increase
sales at 18.4%. The growth rates of firms with IPO
intention are much higher than those of firms without
this intention, regardless of the growth rate measure.
The relationship between the IPO intention and firm
growth is significant and positive, although its
causality may be obscure. The findings indicate thatstart-up firms pursuing IPOs actually succeed in
expanding their businesses, and contribute to more
employment and sales growth.
(Insert Table 2 here)
5. Estimation methods
The definitions of variables that indicate the vector offactors, X, are shown in Table 3. First, the variable forinnovative activities, RD, is measured by R&D
intensity, defined as R&D investment divided by sales,
which can be obtained from the questionnaire.

when one measures financial constraints at start-up. In
many previous studies, cash flow is used to proxyfinancial constraints (e.g., Fazzari et al., 1988).
However, it is difficult to obtain and use this proxybecause cash flow cannot be measured at the time thefirm was founded. In the questionnaire, we ask
entrepreneurs how much initial capital was required
relative to the actual initial capital when the firm wasfounded. If the actual initial capital is less than therequired capital, then the firm is regarded as facing
financial constraints at start-up. In this paper, thevariable for start-up financial constraints, FCONS, ismeasured by a dummy variable for whether the actual
initial capital is less than the required one.
In the questionnaire, we inquire about some
corporate objectives, including strategies, such as―sales,‖ ―profit rate,‖ ―market value,‖ ―avoidance ofbusiness failure,‖ and ―avoidance of being acquired.‖
About these corporate objectives, we asked to assign ascore on each corporate objective with the five-point
Likert scale (5: very important, 4: important, 3:
average, 2: unimportant, 1: very unimportant). In
order to assess the impact of corporate control
purpose on IPO intentions, we assume that if theentrepreneur assesses ―avoidance of being acquired‖at more than ―market value,‖ corporate control, which
implies takeover defense as a corporate objective, isregarded as higher. That is, the valuable for corporate
control, CONT, is calculated by the difference ofscores between ―avoidance of being acquired‖ and―market value‖ as a corporate objective.
With respect to entrepreneur-specific variables,
we use the variables for education level, and work
experience in the model. 37 The variable for age,
MAGE, is defined as the logarithm of theentrepreneur‘s age at start-up. Education level ismeasured by a dummy variable, EDUC, whichindicates whether the entrepreneur has had university
or post-graduate school education. Work experience isalso measured by a dummy variable, EXPE, whichindicates whether the entrepreneur has had work
experience as a board member of a company or a fulltime employee before starting the business. In
addition, some firms are managed no longer by those
who have founded the firms, but by their successors.
Since, as Nelson (2003) argued, the persistentinfluence of the founder on the firm may exist, adummy variable for a founder at start-up, FOUND, is
included in the model to control whether theentrepreneur is a founder or its successor.
Moreover, the variable for joint-stock
corporations, JCORP, is included to control thedifference between the two types of legal forms. In
order to identify the different firm types, the variables
37(Insert Table 3 here)
On the other hand, obtaining an objective proxyof firms that are financially constrained is problematic

The ownership of entrepreneurs may also be associatedwith IPO intentions. In the questionnaire, we inquire whatpercentage the entrepreneur invests in the initial funding. In
practice, the variable for the ratio of the entrepreneur‘sfunds was used to examine its effect on the IPO intention,
but we could not obtain statistically significant results.

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Corporate Ownership & Control / Volume 7, Issue 4, Summer 2010

for spin-offs, SPIN, and for family businesses, FAMIL,
are included in the model. These variables may also
control for the difference in corporate governance due
to firm types.
Furthermore, the sample covers all the
manufacturing and the information service industries.
The behavior and strategies of start-up firms may berelated to industry characteristics. Pagano et al. (1998)
argued that the probability of an IPO is positively
affected by the stock market valuation of firms.
Entrepreneurs presumably tend to expect highvaluation of their firms in such a growing industry,
and a boom may raise awareness of the IPO. In thequestionnaire, we inquire about the main industry offirms, based on the two-digit standard industrial
classification (SIC) level for the manufacturing sector,
including medical preparations, computer software
products, and information services --- totaling 25
industry groups. The variable for industry growth,
IGROW, is used to control the difference between
industries, and it is measured with data for 1998-2000,
by using the Census of Manufactures and Survey onSpecified Service Industries: Information Services38.
On the basis of the above discussions, we
specify Equation (1) as follows:U    1 RD   2 FCONS   3CONT   4 MAGE   5 EDUC   6 EXPE(3)

  7 FOUND   8 JCORP   9 SPIN  10 FAMIL 11IGROW  e,

where 1 ,  2 ,, 11 are parameters to be
estimated. We estimate this equation, using a probit
model.
6. Results
Table 4 shows the descriptive statistics of the
independent variables explained in the previous
section. Table 5 presents the correlation matrix of the
independent variables. Table 6 shows the estimatedresults.39 In column (i) of Table 6, the variables for

38

While the Census of Manufactures covers establishmentswith four or more persons employed each year, it reports
data on all sizes of establishments only in 1998, 2000, and2003 after the foundation years, 1995-1997. Since theeffects of small establishments on industry cannot beignored, the variable for industry growth is measured for
1998-2000.
39
As Pagano et al. (1998) and Chemmanur and Fulghieri(1999) argued, the probability of going public is related tothe age and size of firms due to the potential for adverse
selection, since adverse selection is a more serious obstacle
for young and small firms, which have little track recordand low visibility, than for old and large firms. In order tocontrol for the difference in firm age, two dummies thatindicate firms founded in 1995 and 1996 were included in
the model, but the estimated coefficients were notsignificant. Also, IPO intentions may depend on firm size.
In order to control for firm size, the variable for firm size,
defined as the logarithm of the number of employees plus
board members at start-up, was included in the model.
However, we could not obtain statistically significant results.

134

innovative activities, financial constraints, corporate
control, and entrepreneur-specific characteristics areincluded. In column (ii), firm-type effects arecontrolled, and industry growth is included. In Table
6, marginal effects as well as estimated coefficientsare presented. As already mentioned, our sample
includes the two types of legal forms. The behavior
and strategies of privately limited companies may
originally differ from those of joint-stock corporations.
In fact, the variable for joint-stock corporations,
JCORP, is positive at the 1% significance level inTable 6. Similarly to columns (i) and (ii), columns (iii)and (iv) present estimated results, based on thesubsample only with joint-stock corporations.
(Insert Tables 4, 5, and 6 here)
In Table 6, the coefficients of RD are constantly
positive at least on a significance level of 5%, which
supports our hypothesis. The results indicate thatamong start-up firms, those investing more heavily in
R&D are more likely to wish to go public. While thisfinding does not support Campbell‘s (1979) andYosha‘s (1995) arguments, it is consistent with Honjo(2001). This may also be consistent with Deeds et al.
(1997) who found a positive relationship between the
total amount of capital raised by the IPO and thescientific capabilities of the firm. This suggests that
innovative start-ups wish to go public, in order tosecure alternative financial sources to raise funds
because of large and uncertain investments needed for
R&D. In addition, the findings imply that
entrepreneurs believe the effectiveness of R&D
investment is a signal to potential investors when thefirms raise funds through IPOs. As a result,innovative start-ups may expect to be evaluated withhigh values in the stock markets after their IPOs.
The coefficients of FCONS are constantly
positive. The results tend to support our hypothesis,but, in part, the coefficients are insignificant. The
positive relationship between IPO intentions and startup financial constraints suggests that firms having
faced start-up financial constraints seek to accessequity markets in order to acquire alternative sourcesof finance. By overcoming financial constraints atstart-up, entrepreneurs may expect to gain more
profits through further investment opportunities,
which yield higher valuation of firms. In addition, as
Pagano et al. (1998) pointed out, firms may go public
not to finance future investments and growth, but torebalance their accounts, and gaining access to new
finance alternative to banks is the benefits of going
public. The results may also indicate that
entrepreneurs expect to reduce borrowing costs bycreating new access to finance, which leads to thehigher valuation of firms by gaining more profits. 40
40

In addition to start-up financial constraints, leverageappears to have a positive effect on IPO intentions; that is,highly leveraged firms wish to go public. Besides allowing
firms to raise equity capital, going public may enable firms

Corporate Ownership & Control / Volume 7, Issue 4, Summer 2010

By contrast, CONT tends to have a negative effect on
IPO intentions for joint-stock corporations in (iii) and(iv) of Table 6, but the results are not significant.
Although it is considered that the risk of being
acquired reduces the incentive to go public for startup firms, especially for joint-stock corporations,which pay more attention to this risk, nevertheless wecannot find this relationship. As a result, we do notfind evidence to support the hypothesis that firms thatwish to avoid the risk of loss of corporate control areless likely to have IPO intentions. 41 As alreadymentioned, hostile takeovers in Japan then were not as
prevalent as in other countries, such as the UnitedStates, and entrepreneurs may pay less regard to therisk of being acquired by other firms. However, more
precise data and methods to measure loss of corporate
control or risk of being acquired might be needed toverify the effects of loss of corporate control on IPO
intentions.
As for entrepreneur-specific characteristics, thecoefficients of MAGE are negative, indicating thatyounger entrepreneurs are willing to go public. Also,
EDUC has a positive effect on IPO intentions. Thissuggests that highly educated entrepreneurs arewilling to go public. Younger and highly educatedentrepreneurs may be more interested in expanding
their businesses by going public rather than holding
their firms privately, since they tend to believe morepotential to gain more benefits. It is generally
recognized that younger and highly educated people
have more opportunities to be employed. Despite
having more opportunities to be employed, these
entrepreneurs that start businesses may be willing to
expand their businesses and to go public to gain more
benefits. In addition, the findings imply that corporate
strategies toward IPOs are explained by aspirations
and capabilities based on entrepreneurs‘ personal
attributes. On the other hand, since the coefficients of
EXPE are positive but insignificant, we cannot findany difference according to work experience.
Moreover, FOUND has a positive effect on IPO
intentions, suggesting that entrepreneurs are more
likely to desire to go pubic than successors, but
overall the effects are insignificant.
With respect to firm types, both the variables forspin-offs and for family businesses, SPIN and FAMIL,
to borrow from banks more cheaply. In this paper, theeffects of leverage measured by debt ratio were also
examined. In practice, the positive relationship between the
IPO intention and leverage was found, but the results were
not statistically significant. Furthermore, gaining access to asource of finance alternative to banks may become the
incentive to go public, and Pagano et al. (1998) used thebank rate that is defined as the lagged value of the relative
cost of borrowing to the average borrowing rate of all thefirms in the sample. However, we could not use thisvariable because of data availability.
41
Instead of CONT, we used another variable that ismeasured simply by using the score for avoidance of being
acquired, but we could not obtain statistically significant
results.

have a negative effect on IPO intentions, although, inpart, the coefficients of SPIN are insignificant. Thesetypes of start-up firms are less likely to have IPO
intentions. The findings suggest that start-up firms
financed by parent firms --- that is, spin-offs --- do nothave to seek alternative sources of finance. It is also
found that family businesses have less incentive to go
public. Much literature has discussed whether familybusinesses are different from non-family businesses interms of their resources, behavior, and decisions (e.g.,
Chrisman et al., 2003). Our findings imply that thestrategies of entrepreneurs to gain access to equity
markets differ between these types of firms.
Finally, the coefficients of IGROW are positiveand significant, which indicates that start-up firms
have IPO intentions as their industries grow. The
entrepreneurs in a growing industry can expect a highvaluation of their firms in the stock markets, andentrepreneurs are more likely to have IPO intentions
in such an industry. As Pagano et al. (1998) argued,
there is a positive relationship between the probabilityof an IPO and the stock market valuation of firms, anda boom may raise awareness of the IPO. In addition,
this finding implies that market conditions, such asindustry growth, are key determinants of IPO
intentions among entrepreneurs.42
7. Conclusions
This paper has explored the IPO strategy of start-up
firms. Using an original survey of start-up firms in theJapanese manufacturing and information service
industries, we investigate what factors are associatedwith the intention to go public. Whereas previous
literature has mainly examined IPOs by using theirresults, we shed some light on potential IPOs as seenfrom the viewpoint of entrepreneurs. This paper
examines whether not only the determinants of going
public discussed in previous literature, such as
innovative activities, financial constraints, and loss ofcorporate control, but also entrepreneur-specificcharacteristics indeed have an impact on IPO
intentions. The main result is that among start-up
firms, those investing more heavily in R&D wish togo public. While this finding does not support
Campbell‘s (1979) and Yosha‘s (1995) arguments, it
is consistent with Deeds et al. (1997) and Honjo(2001). It is also found that spin-offs and familybusinesses are less likely to have IPO intentions.
42

In columns (ii) and (iv) of Table 6, we attempt to use
industry dummies based on 25 industry groups. As a result,the coefficients of the dummy for both computer software
products and information services were found to be positive,
which suggest that start-up firms in the information service
industry tend to have an intention to go public. In fact,
successful information technology (IT) ventures havegained benefits by going pubic in such a booming industry,
and, hence, the IT boom may affect IPO intentions.
However, since this dummy is correlated with the variable
for industry growth and other variables, we exclude it fromthe model to avoid multicollinearity.

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Corporate Ownership & Control / Volume 7, Issue 4, Summer 2010

Furthermore, entrepreneur-specific characteristics arefound to relate to IPO intentions, with younger andhighly educated entrepreneurs tending to desire to go
public.
Needless to say, there are several limitations inthis study, particularly due to the lack of argumentsfrom the underwriter and investor sides. The
availability of data on both demand and supply sides
would provide more evidence on the IPO mechanism
by describing the equilibrium. In addition, more
precise data on the benefits and costs of going public,
including how to measure financial constraints andthe loss of corporate control, may be able to elaborate
our findings. Moreover, this paper is based on crosssection analysis, but entrepreneurs‘ motivations
toward IPOs may change over time as they learn
market conditions of industrial structure and financial
markets. For this purpose, longitudinal research isneeded, and further development of this paper would
provide greater insight on IPO intentions, which may
be able to overcome reverse causality concerns.
Furthermore, it can be said the results are peculiar to
Japanese industries, but the analysis may be able to be
replicated in other countries that pursue their policiesof pushing start-up firms to go public. Further
research should seek to understand better how start-up
firms raise funds through IPOs and achieve growth.
Despite the limitations of this study, this paper
contributes to providing further evidence on how the
IPO mechanism is articulated in entrepreneurship andfinance literature. While only a few empirical studies
have directly examined the determinants of IPOs, we
identify whether the determinants of going public
discussed in previous literature, such as innovative
activities, financial constraints, and loss of corporate
control, indeed have an impact on IPO intentions.
This paper also identifies whether attitudes toward
IPOs vary across entrepreneur-specific characteristics
and firm types. In particular, we provide evidence that
R&D-intensive firms tend to pursue IPOs, partly
because these firms secure alternative sources offinance for R&D investment.
The emergence of innovative firms has been thefocus of much public policy discussion, and, as
already mentioned, some developed countries haveintroduced new stock markets to provide funds forinnovative firms with high-growth potential, while
taking into consideration the NASDAQ market. These
markets are expected to help overcome financial
obstacles to entrepreneurship and to the developmentof high-tech industries, but there may be little
evidence as to whether new stock markets operate
efficiently enough to encourage entrepreneurship andinnovation in these countries. On the other hand, as
shown in this paper, R&D-intensive firms amongstart-ups wish to have greater access to equity markets,and they are more likely to grow. The findings of thispaper would provide an empirical support for thecreation of new stock markets for innovative firms
with high-growth potential from the viewpoint ofentrepreneurs. Innovative start-up firms seek to obtain
136

new equity financing even in Japan that is often
characterized by a bank-centered financial system. As
Carpenter and Petersen (2002) emphasize, debt islikely to be a poor substitute for equity. In order tofoster future entrepreneurs and innovative firms withhigh-growth potential, further development of equity
markets is needed, which should lead to moreinnovation and enhanced future economic growth.
Acknowledgements
We thank Nobuyuki Harada and Yasushi Kondo forvaluable comments. This study is, in part, financially
supported by Grant-in-Aid for Scientific Research forthe first author and by Grant-in-Aid for Exploratory
Research for the second author.
Appendix: robustness check
In order to assess the robustness of the estimatedrelationships, we attempt to use alternative estimation
approaches. As shown in Table 1, IPO intentions aremeasured by several levels: alternatives (2), (3), and(4). As an additional approach, an ordered probit
model is employed. The results are shown in Table
A1. In the ordered probit model, ―intention to go
public‖ is divided into three levels: alternatives (2),(3), and (4) of Table 1. That is, the dependent variable,
including ―no intention to go public,‖ is categoricaland ordered with four levels. In Table A1, we obtain
similar results to those of Table 6. More specifically,
the coefficients of RD are significant and positive. In
addition, the coefficients of MAGE and EDUC are
significant, and the results are consistent with those of
Table 6.
(Insert Table A1 here)
Furthermore, one of the main findings is that amongstart-up firms, those investing more in R&D are more
likely to wish to go public. However, RD is not avalue at the initial year when the firm was founded,
but a value at the recent accounting year. Thus, thecausality may be in some sense ambiguous, and R&D
investment may be endogenously determined.
Although it is difficult to disentangle the endogeneity
issue completely, we attempt to use the further
estimation approaches, Newey‘s (1987) two-stepmethod and the conditional maximum likelihood
method, in order to fit models with dichotomous
dependent variables and endogenous variables. As
additional instrument variables, the values of R&D
intensity for the previous two years are employedbecause we inquire about R&D intensity for thepreceding three years. Since data on R&D intensity
for the previous two years are not obtainable forseveral firms in the sample, the numbers ofobservations become 511 and 359 for all firms andjoint-stock corporations, respectively. The results areCorporate Ownership & Control / Volume 7, Issue 4, Summer 2010
shown in Table A2. 43 Regardless of the estimation
methods, we obtain similar results to those reported inTable 6. As shown in Table A2, R&D intensity has asignificantly positive effect on IPO intentions,although the null hypothesis that there is no
endogeneity was not rejected at the 5% significancelevel. Among start-up firms, those investing moreheavily in R&D wish to go public, and the positive
relationship between the IPO intention and R&D
intensity is found to be robust in the additional
estimation.
(Insert Table A2 here)
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Appendices
Table 1. IPO strategy
Alternative
Have already gone public
Intend to go public within one year
Intend to go public within a few years
Have not decided when the firm will go public but intend to go public
Do not intend to go public
Have not considered whether or not to go public
Total
Note: N indicates the number of observations.
(1)
(2)
(3)
(4)
(5)
(6)

N
2
7
21
98
321
73
522

Ratio (%)
0.4
1.3
4.0
18.8
61.5
14.0
100.0

Table 2. Growth rates according to the IPO intention
Employment growth
Sales growth
IPO = 0
IPO = 1
IPO = 0
IPO = 1
Mean
0.069
0.151
0.087
0.184
S.D.
0.124
0.138
0.284
0.391
Median
0.036
0.145
0.059
0.129
N
380
121
363
115
t statistic-6.209***-2.454**Mann-Whitney‘s U statistic-6.363***-3.090***Note: S.D. indicates the standard deviation. N indicates the number of observations. ***, **, and * indicate the1%, 5%, and 10% significance levels, respectively. Since the variance ratio test fails to reject the null hypothesisthat the variances are equal between the two categories of sales growth, Welch‘s formula is used to calculate thet statistic.

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Corporate Ownership & Control / Volume 7, Issue 4, Summer 2010

Table 3. Definitions of variables
Variable
Definition(Dependent variable)
IPO
Dummy variable for whether the firm has the intention to go public.
(Independent variable)
RD
R&D investment divided by total revenue.
FCONS
Dummy variable for whether the actual initial capital is less than the required capital when
the firm was founded.
CONT
The score for ―avoidance of being acquired‖ minus the score for ―market value‖ as acorporate objective.
MAGE
Logarithm of the entrepreneur‘s age at start-up.
EDUC
Dummy variable for the entrepreneur who has had university or post-graduate school
education.
EXPE
Dummy variable for the entrepreneur who has had work experience as a board member of
a company or a full-time employee before starting the business.
FOUND
Dummy variable for whether the entrepreneur is a founder.
JCORP
Dummy variable for a joint-stock corporation.
SPIN
Dummy variable for the firm founded as a subsidiary or an affiliated company at start-up.
FAMIL
Dummy variable for the firm founded as a family business at start-up.
IGROW
Growth rate of sales in the industry where the firm is classified at the two-digit SIC level.
Note: All the dummy variables take the value one if the stated condition holds, and zero otherwise.
Table 4. Descriptive statistics
All
IPO = 0
S.D.
Min.
Max.
Mean
S.D.
RD
0.148
0.000
2.100
0.042
0.140
FCONS
------------0.277----CONT
1.523 -4.000
4.000-1.145
1.541
MAGE
0.233
3.045
4.317
3.839
0.225
EDUC
------------0.492----EXPE------------0.921----FOUND------------0.792----JCORP------------0.645----SPIN------------0.312----FAMIL------------0.076----IGROW
0.051 -0.119
0.080-0.014
0.048
Entrepreneur‘s age
10.218 21.000 75.000
47.591 10.056
Firm‘s age
0.805
5.000
7.000
5.954
0.803
N
520
394
Note: S.D. indicates the standard deviation. N indicates the number of observations.
Variable

IPO = 1
Mean
S.D.
0.087
0.167
0.365
-----1.214
1.473
3.754
0.245
0.659
----0.952----0.897----0.897----0.230----0.008----0.011
0.055
43.937 10.266
5.976
0.815
126

Mean
0.053
0.298
-1.162
3.818
0.533
0.929
0.817
0.706
0.292
0.060
-0.00846.706
5.960

Table 5. Correlation matrix
Variable
RD
FCONS
CONT
MAGE
EDUC
EXPE
FOUND
JCORP
SPIN
FAMIL
IGROW

RD
1.000
-0.000-0.059-0.0690.058-0.0080.076-0.000-0.096-0.038
0.074

FCONS

CONT

MAGE

EDUC

EXPE

FOUND

JCORP

SPIN

FAMIL

IGROW

1.000
-0.072-0.042-0.0720.050
0.123-0.022-0.151-0.093-0.051

1.000
0.042
0.037
-0.034-0.060-0.021
0.007
0.043-0.0191.000-0.0030.095-0.3220.140
0.249-0.021-0.2001.000
0.071-0.114
0.182
0.127
0.024
0.081

1.000
0.101
0.150
0.046
-0.0880.121

1.000-0.131-0.309-0.091
0.093

1.000
0.239
-0.0870.085

1.000-0.162-0.0721.000-0.1441.000

Note: The number of observations is 520.

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Corporate Ownership & Control / Volume 7, Issue 4, Summer 2010

Table 6. Estimated results: probit
All

Joint-stock(i)
Variable
Constant term
RD
FCONS
CONT
MAGE
EDUC
EXPE
FOUND

Coef.
1.318
(1.123)0.879**(0.368)0.245*(0.134)-0.006(0.041)-0.776***(0.281)0.431***(0.127)0.316(0.276)0.301(0.188)

JCORP
SPIN
FAMIL
IGROW
N
log-likelihood
LR testPseudo R2

520-268.938.0***
0.066

(ii)
dF/dx

0.265**(0.111)0.076*(0.043)-0.002(0.012)-0.234***(0.084)0.128***(0.037)0.085(0.065)0.084(0.048)

Coef.
1.056
(1.199)0.841**(0.387)0.201(0.143)0.011(0.043)-0.784**(0.308)0.321**(0.136)0.076(0.306)0.284(0.203)0.978***(0.178)-0.294*(0.160)-1.142**(0.502)3.426***(1.316)520-241.293.4***
0.162

(iii)
dF/dx
0.232**(0.107)0.057(0.042)0.003(0.012)-0.216**(0.085)0.088**(0.037)0.020(0.079)0.072(0.047)0.223***(0.032)-0.077*(0.040)-0.188**(0.037)0.945***(0.364)Coef.
2.414*(1.318)1.669***(0.566)0.321**(0.155)-0.032(0.047)-1.024***(0.332)0.395***(0.150)0.259(0.367)0.337*(0.202)dF/dx
0.572***(0.195)0.114**(0.056)-0.011(0.016)-0.351***(0.114)0.132***(0.049)0.083(0.107)0.109*(0.061)

(iv)
Coef.
dF/dx
2.008
(1.361)
1.498*** 0.506***(0.562)(0.190)0.269*
0.093*(0.159)(0.057)-0.022-0.008(0.047)(0.016)**-0.833-0.281**(0.349)(0.118)0.378**
0.125**(0.153)(0.049)0.160
0.052(0.376)(0.115)0.255
0.082(0.212)(0.065)-0.230(0.168)-1.049**(0.533)
3.214**(1.485)367-198.556.2***
0.124

367-204.843.5***
0.096-0.076(0.054)-0.241**(0.066)1.085**(0.501)

Note: Coef. and dF/dx represent estimated coefficients and marginal effects, respectively. Figures in parentheses are standard
errors. ***, **, and * indicate the 1%, 5%, and 10% significance levels, respectively. N indicates the number of observations.
Table A1. Estimated results: ordered probit
All
Variable
RD
FCONS
CONT
MAGE
EDUC
EXPE
FOUND

(i)
Coef.
0.830**(0.345)0.207(0.127)-0.014(0.039)-0.807***(0.267)0.415***(0.122)0.367(0.268)0.255(0.182)

JCORP
SPIN
FAMIL
IGROW
N
log-likelihood
LR testPseudo R2

520-351.038.8***
0.052

Joint-stock
(ii)
Coef.
0.808**(0.357)0.160(0.134)0.005(0.041)-0.809***(0.288)0.302**(0.129)0.151(0.292)0.242(0.195)0.926***(0.172)-0.231(0.151)-1.147**(0.498)3.293***(1.228)520-324.292.5***
0.125

(iii)
Coef.
1.348***(0.459)0.275*(0.144)-0.036(0.044)-1.024***(0.310)0.384***(0.142)0.363(0.345)0.282(0.194)(iv)
Coef.
1.295***(0.461)0.231(0.148)-0.025(0.045)-0.860***(0.323)0.361**(0.145)0.255(0.352)0.209(0.203)367-280.142.9***
0.071-0.173(0.157)-1.053**(0.525)3.071**(1.366)367-273.755.7***
0.092

Note: Coef. represents estimated coefficients. Figures in parentheses are standard errors. ***, **, and * indicate the 1%, 5%,
and 10% significance levels, respectively. N indicates the number of observations.

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Corporate Ownership & Control / Volume 7, Issue 4, Summer 2010

Table A2. Estimated results: probit with endogenous independent variables
All
Joint-stock
(i)
(ii)
(iii)
(iv)
Two-stepML
Two-step
ML
Variable
Coef.
Coef.
Coef.
Coef.
Constant term
0.730
0.697
1.538
1.524
(1.231)(1.213)(1.386)(1.381)RD
1.161**
1.170**
1.810***
1.832***(0.498)(0.475)(0.647)(0.640)
FCONS
0.218
0.214
0.295*
0.293*(0.146)(0.144)(0.162)(0.161)
CONT
0.007
0.007
-0.029-0.028(0.044)(0.043)(0.048)(0.048)MAGE-0.700**-0.689**-0.715**-0.711**(0.316)(0.312)(0.358)(0.357)EDUC
0.313**
0.314**
0.368**
0.369**(0.140)(0.137)(0.156)(0.155)
EXPE
0.073
0.071
0.136
0.136
(0.335)(0.327)(0.422)(0.416)
FOUND
0.280
0.283
0.260
0.262
(0.207)(0.204)(0.215)(0.214)JCORP
0.952***
0.952***(0.181)(0.179)SPIN-0.291*-0.290*-0.232-0.232(0.164)(0.162)(0.171)(0.170)FAMIL-1.239**-1.239**-1.107*-1.111*(0.567)(0.548)(0.574)(0.568)IGROW
3.323**
3.289**
3.046**
3.022**(1.346)(1.329)(1.515)(1.505)
N
511
511
359
359
Wald test
69.0***
71.8***
45.5***
46.8***Wald test of exogeneity
3.10*
3.17*
1.09
1.11
Note: RD is an endogenous independent variable, and instrument variables are the values of R&D intensity for the previous
two years. Two-step and ML represent Newey‘s two-step method and the conditional maximum likelihood method,respectively. Coef. represents estimated coefficients. Figures in parentheses are standard errors. ***, **, and * indicate the1%, 5%, and 10% significance levels, respectively. N indicates the number of observations. Wald test of exogeneity tests thenull hypothesis that there is no endogeneity.

141