The Empirical Research Of Venture Capital Reputation And Initial Public Offerings’ Long-term Performance

Venture capital was first introduced to China in the1980s. In recent years, with thedevelopment of the capital market, the investment of venture capital played a veryimportant role in promoting the development of China’s enterprises (especially the high-tech enterprises). Abroad has accumulated a large number of documents in investigatingthe involvement of venture capital on its investee company’s long-term performance, theconclusions more proofed that the venture capital investment involved in the investmentprocess can plays a certification functions and monitoring functions on its investeecompany. VC providing standardized enterprise operation and value-added services to itsinvestee company, such as helps drawing the development and implement strategies, helpscarrying out integration of resources to create value, etc. The participation of venturecapital has a positive impact on its investee company’s long-term performance after IPO.Other studies have shown that foreign venture capital reputation has a significant positiveeffect on the long-term performance of its investee company: the listed company which hasbeen supported by the more reputable venture capital has a better long-term performance.While the studies of this field are focused on developed countries, in mainland China, afew studies conclusions of this field are not consistent, and less likely to study theinfluences of the venture capital reputation.In this study, collected358listed company of Chinese mainland (including102VC-backed companies) which went public on motherboard and small plates from2004to2008as the research object, to detect the venture capital’s influence for its investee companylong-term market performance for three consecutive years after the IPO. Unlike mainlandresearch in the past and more venture capital as homogeneous investment participants, thisstudy suggests that the venture capital’s reputation is different, and there are differences inthe quality of value-added services from the different reputation venture capital. This studyused two indicators as the representative variables of VC’s reputation, to detect if thevariables of VC’s reputation affect the long-term performance of the investee company.The empirical research shown, venture capital had a significant positive relationshipwith the net profit margin of assets (ROA) of the investee company, the company backedby VC had a higher ROA after IPO for three years, while the buy and hold excess rate ofreturn (BHAR) had no significant relationship. The reputation indicators age and size ofventure capital all had a significant positive correlation with the ROA of investee company after IPO for three years, while the buy and hold excess rate of return (BHAR) had nosignificant relationship. This study verified that the certification functions and monitoringfunctions of venture capital established in the mainland China market. The research resultsalso show that the reputation of the VC has a positive impact on the performance of itsinvestee company, the higher the reputation of venture capital due to the rich accumulationof successful investment management experience, higher quality value-added services canbe provided to its investee company. Moreover, venture capital often continue hold sharesof the listed company for a period of time to continue to participate in corporategovernance, in order to promote a better performance after the listing of the company, andmaintain the VC’ high reputation.