Do PE Firms Help To Improve Smes’ Performance?

Private equity firms’ favorite thing is full circulation equity market. Therefore, IPO is thefavorite way for the private equity investors to choose to exit. In China, the launch of ShenzhenSME board in2004and Shenzhen ChiNext board in2009is welcomed by PE firms because itbroadens the exit channel of PE firms. In ChiNext, the high PE ratio, high issue price, high toraise capital have attracted a lot of attention. In fact, the stock market has created so many menof rich not only in SME board but also in ChiNext board. Thus the hidden PE firms behind theIPO firms have also made a lot of money in stock market. PE firms can’t sell their shares inpublic market right after the target companies’ IPO, because PE Firms have to lock their equityfor one year after the target companies going public according to the provisions of ChinaSecurities Regulatory Commission. After the lock-up period, PE firms can gradually reduce theirshares.The research sample of this article is the listed companies which issued in the SME board in2007&2008and in the ChiNext board in2009&2010. This paper examines the impact of PEfirms on the target company in two different periods. The first period is from the time when PEfirms begin to invest the target company to the time when the target company goes public. Thesecond period is the period during which PE firms gradually reduce their shares in the targetcompany after the lock-up period. This paper uses statistical tests and multiple regression modelto test the effect of PE firms on SMEs’ performance both before the lock-up period and after thelock-up period.The empirical results indicate that PE firms don’t have impact on SMEs’performance from the time when PE firms begin to invest the target company to the time whenthe target company goes public. The empirical results also indicate that a PE firm’ s share in thetarget company, a PE firm’ s investment time in the target company, a PE firm’s seat in theDirectors and a PE firm’s seat in the board of supervisors don’t have significant impact on theoperating performance of the target company. The empirical results also indicate that PE firmsdon’t have impact on SMEs’ performance while they gradually reduce their shares in the targetcompany after IPO, and that PE firms’ seats share in the Directors and the board of supervisorsdon’t affect SMEs’ performance after IPO. Comparing to the companies invested by state-owned PE firms’, the companies invested by private PE firms do much better both before the lock-upperiod and after the lock-up period.