Effects Of Venture Capital In The Process Of Initial Public Offerings

What does venture capital bring for the listed company? To solve this problem, we empirically examine the effects of venture capital in the process of a company's initial public offering. A data set consisting of companies listed on the small and medium-sized enterprises (SMEs) board from 2006 to 2010 (stock code: 002051-002368) is collected for the study. After checking IPO prospectuses and relevant databases, we get 93 VC backed listed companies and 224 Non-VC backed listed ones. To compare VC backed and Non-VC backed companies, we apply a classical method. That is, each VC backed company is matched with a counterpart, which is a Non-VC backed company in the same industry, with a similar IPO time and a similar asset size. A total of 77 VC backed companies and 77 Non-VC backed ones are found and will be used for further analysis.We find that grandstanding model and adverse selection model can't be supported, which is different from previous studies. Venture capital has short-term selection & monitoring effects. And old venture capital is better than the young one in this effect. In a word, Venture capital has short-term impacts on the company instead of long-term ones. When studying into certification and market power effects, we apply a different prospect. Firstly, an empirical model has verified that factors both from the primary market and the secondary market have impacts on the IPO underpricing. And then, to compare VC backed companies and Non-VC backed companies in these factors, we find that there is no certification effect, but market power effect. More specifically, venture capital attracts higher quality market participants, thus resulting in higher valuations for the equity of the listed companies (on the secondary market). And besides, underwriter support also exists in the market. Finally, we come up with some practical suggestions for the development the venture capital industry.