| PE/VC investment is an important channel through which companies can go public on the stock market. While providing companies with necessary capital, PE/VC organizations also offer value-added services that would help improve the management level of the invested companies. IPO is an important way of exit for PE/VC organizations to gain profits, and PE/VC investment also has a significant influence on companies IPO issuing price.The present study used companies that went public from2010to2012on Chinese Growth Enterprise Market as subjects and investigated the influence of PE/VC investment on company’s IPO issuing price. Specifically, the study investigated whether PE/VC support has an influence on company’s IPO issuing price and whether the reputation of PE/VC organizations makes any difference. After carrying out the empirical analysis, the following four findings were generated:1. On Chinese Growth Enterprise Market, PE/VC support had a significant influence on IPO issuing price. Specifically, PE/VC backed companies’ under-pricing rate was significantly higher than that of companies without such support. Among all the305subject companies, the average IPO under-pricing rate of PE/VC supported companies was31.17%; significantly higher than27.53%, the under-pricing rate of companies without PE/VC support. This indicated a signal effect of PE/VC organizations’ investing in a certain company. In other words, PE/VC organizations investment sent out a signal to the market, and this would help the company get recognized by the market. Furthermore, the "Certification Model" is proved to be not effective in China’s GEM..2. Win a label rate (WLR), issuing scale (IS), total issuing expense (TIE), and the opening price (OP) are the major factors influencing IPO under-pricing rate. Opening price and the under-pricing rate are positively correlated while win a label rate and the under-pricing rate are negatively correlated. A high opening price and a low win a label rate equal to a high degree of recognition from investors on the secondary market for the newly listed company.3. PE/VC organizations’reputation was not significantly correlated with IPO under-pricing rate, indicating that the reputation of a PE/VC organization would not significantly influence the company’s issuing price. The fact that high reputation PE/VC organizations failed to significantly reduce the IPO under-pricing rate of their invested companies showed, to some degree, that the Grandstanding Model did not fit to Chinese GEM. Also, the finding reflected a dash for Pre-IPO as a way of building reputation among Chinese PE/VC organizations.4. High-reputation PE/VC backed companies had a smaller issuing scale than other PE/VC backed companies. One possible reason is that there is a special period called the lock-up period for companies that go IPO on GEM. During the lock-up period, PE/VC companies are not allowed to sell their shares until two months after the initial offering. The special period put the issuing scale under the influence of non-tradable shares in that once the non-tradable shares take up the larger proportion of total shares, the tradable shares are reduced. Yet the issuing scale is mainly calculated by tradable shares. High reputation PE/VCs generally owns abundant capital, and they tend to have the larger amount of shares in their supported companies than other PE/VCs in other companies. Yet because of the lock-up period, these shares are all non-tradable. Therefore, high reputation PE/VC backed companies’ issuing scale is smaller than other PE/VC backed companies.Finally, based on the findings, the present study offered four suggestions,1. Build a reputation mechanism for Chinese PE/VC organizations.2. Introduce proper strategic investors3. Increase the proportion of institutional investors in all the investors in China’s GEM to build a professional trade market4. Improve the information releasing system of companies that plan to do IPO and PE/VC investors... |
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