Study On Venture Capital Reputation And The GEM IPO Effect

Venture capital institution is a major force to nurture and filter High-qualityenterprises, as well as the "heavy weapon" for the small and medium enterprises tosolve the financing difficulties. Especially in China’s GEM market, venture capitalinstitutions shoulder tasks of much importance to help the companies to complete thelisting plan and to accelerate the process of technological innovation enterprises. Itbecomes innovation incubator to the enterprises, personal expert to enhance corporatevalue and the signal sensor to outside investors.At the same time, excellent institutionsof venture capital is likely to be subject to start-ups and investors of all ages, thus thereputation of the venture capital institution is playing a particularly important role. Thereputation of the venture capital institutions not only reflects the results of both venturecapital and institutional traders in a repeated game, but also the accumulation to attractand recruit outstanding entrepreneurial enterprises and well-known underwriters.Based on the matured background in China Venture Capital, combined with theclassic IPO discount premium theory, game theory, and long-term operatingperformance after the IPO, this paper do research about the venture capital institutionsand their reputation. Selecting GEM IPOs as the sample, we use the static and dynamicgame theory analysis the effect of the IPO and the relationship among the venturecapital institutions, start-ups, outside investors, and the hair trial institutions. Using atwo-stage regression model, we do empirical research with the IPO initial return and thelong-term effect affected by the participation of venture capital, venture capital equityratio, and the reputation of the venture capital.After the Game Theory analysis we found that: Firstly, IPOs of venture investmentin discount level is lower than the IPO corporate without the venture capital support;Secondly, the long-term performance of the IPO companies involved in venture capitalorganizations is better than the companies without the venture capital; What’s more, Thehigher the reputation of the venture capital institutions, the lower the IPOs level ofdiscount; In addition, once the IPO of the venture capital institutions supported by theenterprise with a high reputation, its performance is better than low-reputation venturecapital institutions; Last but not the least, there are the interests of "conspiracy" amongthe hair trial institutions, and venture capital institutions, and start-ups, but outsideinvestors receive nothing. That is information asymmetry between them. Precisely because of this the existence of information asymmetry resulted in long-termperformance of IPO companies and the IPO discount.The empirical analysis reflected that: First of all, whether the venture capital sectorto participate in IPOs initial or not, the effect of the GEM market played a weak role inventure capital certified (almost not at all); Secondly, the stake proportion of venturecapital enterprises does not have a significant impact on IPOs initial returns; What’smore, the reputation of the venture capital had no significant effect on the discount ofIPOs, that means the reputation of venture capital institutions in the GEM market’scohesion effect is poor; In addition, once the venture capital organizations participate inthe IPO companies, long-term performance become better than not; Finally, thereputation of the venture capital has a significant positive effect on the performance.That means high reputation of the venture capital can bring long-term return, indicatingthat the venture capital reputation indeed enhance the performance after the IPO.In the end, we explain the reasons for the differences between game analysis andempirical analysis from the perspective of the GEM market characteristics and irrationalinvestment behavior. we concluded that what the venture investment institutions shoulddo is that to enhance IPO audit of the reputation of signal transmission, to enhance andimprove the evaluation system, to build and improve salary incentive and restraintmechanisms, reduce the irrational behavior of investors in order to ensure the reputationof the venture capital institutions efficiency; then we gave some suggestions to developthe implementation of relevant laws and regulations to promote the orderly developmentand enhance the reputation of the venture capital institutions efficiency.