An Empirical Study Of The Impact Of Venture Capital's Participation On China Domestic IPOs

In the past 2010,490 Chinese enterprises listed inside or outside, among which 204 ones listed in SME board in Shenzhen Stock Exchange, and 117 ones listed in GEM board in Shenzhen Stock Exchange. Regardless in quantity and scale, the 2010 IPOs surpassed the 2007's record high. Venture capital (VC) is the agent connecting SMEs and the capital market. With the IPO market's current dynamism, the role PE/VC plays in the IPO attract scholar's attention.There are two main theories explaining VC-backed IPO performance, Certification theory and Grandstanding theory. The Certification theory believes that VC reduces the information asymmetry between the investors and professional services, and improves the capital market acceptance as well. So that the market performance of VC-backed enterprises is better than non-VC backed ones. On the contrary, Grandstanding theory thinks that VC is eager to establish a reputation so that it takes enterprises public earlier and so that causing larger cost. VC backed enterprises would underperform because of early IPO timing or earning overdrawing. These two theories have been proved in developed securities market in varying degrees, but in an emerging market such as China, the effects of venture capital's participation in IPO are needed to be researched.This paper collected a data set consisting of 347 enterprises listed on the Chinese SME and GME board by non-VC backed and VC backed groups. It analyzed the differences of the IPO characters between VC-backed and non VC-backed enterprise and it applied the descriptive analysis and Mann-Whitney U test to examine the function of VC in an Enterprise's IPO. This paper also uses SPSS to conduct time sequence regression and F-F three factors model. The main finding is that the China VCs exhibit partial certification functions and partial grandstanding, which means their professional service bring the invested enterprises value added, but the VC-backed enterprises afford more IPO costs caused by the need of creating reputation from VC.