Study On IPO Market Performance Of VC-backed Companies

With the opening of CGEM, Venture Capital begins to play an important role in the process of IPO. It is necessary to research the influences of Venture Capital on VC -backed companies' IPO market performance, because it benefits to improve the efficiency of IPO market and provides insight of emerging market.This paper empirically examines the influences of Venture Capital on VC-backed companies' market performance, and tests the Effects of Venture Capital, based on a sample of 74 IPOs which goes public in ShenZhen SME Board.First, this paper analyses the differences of operating performance three years before IPO, initial return, long-run performance of IPO between VC-backed IPOs and Non-VC-backed IPOs. Then it analyzes the factors that affect those differences, in order to find the reason of those differences and test Effects of Venture Capital in ShenZhen SME Board. Research documents that operating performance three yearsbefore IPO of VC-backed IPOs significantly underperformed that of Non-VC-backed IPOs, which indicates that Monitor Hypothesis, Adverse Selection Hypothesis, Grandstanding Hypothesis exist in ShenZhen SME Board. Research also shows that there is a significant difference of IPO market performance between VC-backed IPOs and Non-VC-backed IPOs: Initial return of VC-backed IPOs is higher while itslong-run performance of IPO is worse. Multiple regression analysis shows that differences of operating performance three years before IPO is the main cause of differences of IPO market performance between VC-backed IPOs and Non-VC-backed IPOs, which indicates that Certification Hypothesis does not exist in ShenZhen SME Board. In the end, it summarizes the research, and gives some advices for how to develop Chinese Venture Capital.