A Study On Relationship Between Venture Capital And IPO Underpricing On Chinese GEM

In the initial public offering process, most companies have a huge return on the first day, this phenomenon is known as IPO underpricing. In the global IPO market, there is the phenomenon of IPO underpricing. Compared to the mature markets, the IPO underpricing in emerging markets is more severe.China’s IPO market is still emerging markets, the IPO underpricing phenomenon is still more serious, especially in the GEM market that just been established in2009. A total of28of the first companies listed on GEM, and28listed on the first day underpricing has also reached alarming levels, the first day of the IPO, the highest rate of return of209.73%(300028),the mean value reached106.23%.Venture Capital from a number of professional or specialized agencies invest the newly established or growing rapidly, the potential risk unlisted emerging enterprises to provide long-term equity financing and value-added services, nurturing enterprises have grown rapidly, a few years later through the listing, merger or other equity transfer to the withdrawal of investment.In2009, the establishment of the Growth Enterprise Market widen the road of China’s Venture Capital institutions capital’s withdrawal.2011, Chinese companies listed on GEM of the Chinese Communists124pen out of the deal, accounting for27.19%of the2011out of the deal. China’s GEM market has become China’s venture capital institutions to achieve the withdrawal of capital is one important way. Venture Capital and GEM increasingly close relationship in recent years, scholars started paying attention to the role of venture capital in the IPO process.China’s GEM was established less than three years, the system is not perfect, early stage companies listed on GEM IPO underpricing phenomenon is very serious, if we are able to identify the influence factors of the GEM IPO underpricing and thus provide some suggestions for the system construction of China’s Growth Enterprise Market, there is a very important practical and theoretical significance. The article not only to study the relationship between IPO underpricing rate of whether the venture capital investments, but also study the reputation of the venture capital institutions, as well as the total ownership and IPO underpricing rate the relationship between research, rich the relationship between venture capital and IPO underpricing.Companies listed on GEM in China on October30,2009to May2011,31, the study sample to analyze the relationship between venture capital and IPO underpricing. The study found that:The Venture Capital institutions to support the company IPO underpricing rate significantly higher than Non-Venture Capital backed companies; Venture Capital institutions of high reputation and not significantly reduce the underpricing of the investment object; the higher the ownership of the Venture investment institutions, investments IPO underpricing, the lower rate.Each part of the article is structured as follows:The first part is the introduction of the article.The second part is the literature review. The article first reviews the literature of the relationship between domestic and foreign literature on IPO underpricing and Venture Capital institutions and IPO underpricing. Then reviews the literature of the relationship between the Venture Capital institutions and IPO underpricing.The third part introduces the China’s IPO institutional background and analysis of Venture Capital.In the fifth part of the articlethe made three assumptions.First assumption for the Venture Capital Funds held company IPO underpricing higher rate. The second assumption is that venture capital institutional ownership sub-samples, the high reputation of the venture capital institutions have a more extensive project experience and project resources, and their choice of investments is likely to choose to go to those quality better companies, thereby reducing the underpricing of new shares issued. Third, the higher the cumulative stake in the venture capital institutions, project selection, they may become more cautious, and therefore reduce the degree of information asymmetry between the venture capital institutions and the investment target, thereby reducing the underpricing of the IPO rate.The sixth section presents the conclusions of this paper:First, the venture investment institutions holding company IPO underpricing rate significantly higher than those of non-venture capital institutions held company.Second, the reputation of the venture capital institutions impact on the IPO underpricing is not significant, the high reputation of the venture capital institutions have not been able to significantly reduce the investee IPO underpricing.Third, the ownership of the venture capital institutions and investment targets IPO underpricing rate was negatively correlated.The expected contribution of this paper include the following three aspects:First of all, I hope to enrich our country IPO underpricing on the GEM market. And expect to be able to provide some theoretical explanation on the GEM IPO underpricing by China Growth Enterprise Market of new shares issued on the first day underpricing. So as to improve the GEM system and improve the efficiency of the entire market IPO pricing policy.Second, enrich the relationship between the holdings of venture capital institutions and the investment target in China’s IPO underpricing.Finally, we look forward to the last policy views to the development of China’s Growth Enterprise Market and the whole stock market in the future better play some role.There are some shortcomings, such as:First, this study sample contains only224companies listed on GEM before May31,2011, the sample size is not considered great.Second, this article only on the venture capital institutions whether shares the reputation of the venture capital institutions, ownership of the venture capital institutions and the investee IPO underpricing. And no investment of time for venture capital institutions, venture capital institutions to participate in corporate governance, venture capital and institutional context factors affect the price of investments IPO underpricing. This is because the information in this regard, the IPO prospectus disclosure is very limited, but it is difficult to obtain this information through other means.Third, the limitations of the method. Usually the study of foreign ownership and IPO underpricing of venture capital institutions using the method of analysis of paired samples, under the control of the company size, industry research, more accurate analysis of venture capital institutions and IPO underpricing the relationship betweenWe can do further research in the following aspects.With the increasing number of companies listed on GEM. by using the paired samples test method.Second, by gathering venture capital institutions to invest their time, the venture capital institutions to participate in corporate governance, venture capital and institutional context information to further study of these factors impact on the rate of investment targets IPO underpricingThird, we can research the long-term performance of these VC-backed companies.