Private Equity, IPO Underpricing And Long Term Performance Of Listed Enterprises

Private equity (PE) as the product of developed financial market plays more andmore important role in the rapid growing capital markets. Especially for the high-techindustry, PE has played a good role. In recent years, China’s PE industry becomesincreasingly active, and its rapid development brings new vitality to China’s financialmarkets.Foreign scholars began to research the IPO impact of PE from1900s.They usedifferent samples from the capital market as research object, and get different conclusions.Their studies can be summarized as the four classic hypotheses. That thinks PE plays anactive role amoung listed companies, called “certification hypothesis” and “screening/monitoring hypothesis”; that thinks PE intervention brings negative effects called “adverseselection” and “grandstanding hypothesis”. However, we want to know that PE plays apositive or negative role for Chinese enterprises in the IPO process, and the performanceof post-IPO. Chinese scholars on this concern only just beggin, and this thesis is theanswer to the above question.The thesis reviewed the existing literatures on PE from China and the West and alsotalks about the operational characteristics, the development status in China, and the theoryof IPO underpricing etc. The thesis use the data of China’s2004-2011SME（SmallMedium Enterprise）market and2009-2011GEM (Growth Enterprise Market) listedcompanies’ data as samples. Divided the samples into two groups to do empirical test, thatone group is PE backed companies and the other one is non-PE backed companies. Foundthat in our country, PE does not play a certificated role. That means PE does noteffectively reduce the information asymmetry between the issuer and other investors,because there is no significant difference in IPO underpricing between two groups ofsamples. The quality of the PE backed enterprises significantly better than Non-PEbackground enterprises pre-2008, and we do not get the same conclusion in the sampleafter2008. So the paper thinks that PE just partially plays screening role.Then using data to do regression, the test does not find any significant difference inthe long-term performance between the two groups. So PE does not play the role ofmonitoring. Meanwhile, the test results do not satisfy the “adverse selection” and “grandstanding hypothesis” either. This shows that PE in China changes a lot not only thebasic theory but also the performance, so we can not directly apply abroad theories. Due tothe split share structure, the secondary market speculation and PE investors’ experience,China’s PE market has its complex particularity. In short, PE did not play its due role inChina.Finally, according to the result of the test, the thesis also makes several suggestions togovernment regulators, PE organizations and invested companies.