UM E-Theses Collection (澳門大學電子學位論文庫)


Effects of venture capitalist participation on IPO firms : evidence from China

English Abstract

ABSTRACT We analyse the effects of venture capitalist participation on Chinese listed companies, by testing the two models that proposed by previous study: certification/monitoring model and adverse selection/grandstanding model. We empirically compare the underpricing level, post-issue operational performance, and aftermarket performance of 53 venture capitalist backed IPOs against a control sample of 68 non-venture capitalist backed IPOs listed on the Small and Median Enterprise Board in Shenzhen Stock Exchange during 2004 to 2007. We find that VC backed companies are younger and enjoy lower issuing cost. But due to the investors” high enthusiasm about oversubscription, they also have higher underpricing. And because non-VC backed company choose to go public when its performance reaches the best, VC backed group has inferior post-issue operating performance compared to non-VC backed one. However, the market appears to recognize the value of VC as reflected in less fluctuation in the excess returns. We believe this contrast between operational performance and market expectation implies investors’ confidence about VC, yet the certification/monitoring effect of VC has not shown in the early post-listing year and its effect is also obstructed by information asymmetry. Later on, the results of regression confirm the limited positive effect of VC and suggest that VC is able to bring company public earlier. Ii addition, we find that the poor operational performance is significantly negatively related to gross proceeds, which supports the extant argument that IPO companies in China are involving with changing committed investment projects of raised fund. Finally, the grandstanding test shows that young VC backed companies outperform old VC backed ones in terms of pre-listing EPS growth rate, offering price, gross proceeds and post-issue operational performance. But old VC backed companies significantly earn higher initial return during the issuance, which again confirm the reputation of old VC firm is recognized. Last but not least, we find the more the VC participate, the better its holding company perform. In conclusion, because 1) VC join the company at the phase of reforming; 2) VC supported by government and university does not have difficulty in future fundraising, VC backed companies’ poor post-issue operating performance is not attributed to grandstanding activities. Therefore we believe the severe the information asymmetry in Chinese private market is responsible for offsetting the certification/monitoring effect of VC. Keywords: Venture capitalist; Certification: Adverse Selection; Grandstanding

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Pang, Wan


Faculty of Business Administration


Department of Finance and Business Economics




Venture capitalist

Going public (Securities) -- China

Corporations -- Finance -- China


Vong, Pou Iu

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