Venture Capital Research The Role Of Chinese Small And Medium-sized Enterprise Board Listed Companies

This paper examines the role of venture capital (VC for short) in the SME board in China in the following two aspects:the IPO corporate’s performance and the first day IPO underpricing.VCs screen from a number of deal-flows, and select the certain deal flow to invest; they provide value-added services which may make a positive impact on corporate performance. In the practice, two and more VCs syndicate to invest in the venture firm. According to venture capital network theory, the syndicated VCs are more likely to get access to good quality of deal flow as well as to add opportunity for firms to obtain fund. This paper studies the role of VC as well as syndicated VC on IPO firm’s performance to examine whether VC-IPO firms and syndicated VC-IPO firms have better performance compared with non VC-IPO firms.Using the operating performance and asset-debt ratio data dated from two-years before IPO to two-years after IPO, this paper study the impact of VC on corporate performance. The sample comes from companies listed on the SME board in China from June2004to September2009. The empirical results show that, from pre-IPO to post-IPO, there is no statistically significant difference in business performance and asset-debt ratio between VC-IPO and non VC-IPO firms. Compared with non VC-IPO firms, syndicated VC-IPO firms have statistically significant better operating results and lower asset-debt ratio from pre-IPO to one year after IPO; and in the second year after the IPO, there is no significant difference. This result indicates that syndicated VCs are more likely to get access to good quality of deal flow and provide financing channels to improve the capital structure of enterprises. But the syndicated VCs did not provide the long-term value-added services to the venture firms because after the joint VC withdraws from the enterprise, the operating performance declined and the asset-debt ratio rose.Venture capital invests in start-ups and the IPO is one of the main ways for VCs to exit form the venture firms. Megginson and Weiss (1991) argued that VCs, as long-term IPO market participants, play a certification role in the IPO process, and reduce the underpricing of IPO Firms. This article uses the sample from the company listed on the SME board in China between2004and2011to examine the certification role of the VC as well as syndicated VC on the first day IPO underpricing.This paper sets the underpricing regression model after referring to several scholars’ study on IPO underpricing problem in China. The statistical analysis of underpricing shows that underpricing varys a lot between2004and2011, and the underpricing are higher in2007and2008. This paper uses the2004-2011sample and do the underpricing regression; the results show the VC-IPO as well as syndicated VC-IPO have higher underpricing. Considering that underpricing are higher in2007and2008and there are outliers, this article use the sample excluding the outliers from2004to2011and do the regression again; results show that there is no significant differences in underpricing between VC-IPO and non VC-IPO; there is also no significant differences in underpricing between syndicated VC-IPO and non VC-IPO. Because the underpricing is different before and after the new IPO system begins at2009, the article uses the sample after year2009to estimate the underpricing regression; results show that syndicated VC-IPO have statistically significantly lower underpricing than non VC-IPO. This indicates that after the new IPO system, the syndicated VCs can reduce IPO underpricing rate and they play the certification role.