An Empirical Study On Venture Capital’s Influence On Ipo Underpricing In Chinese GEM

Since the launch of Chinese GEM in October2009, more and more listed companies are invested by Venture Capital. Academic circles focus on this phenomenon, hotly debate on it, and concern the relationship between the IPO underpricing and Venture Capital. Therefore, this article studies Venture Capital’s influence on IPO underpricing in Chinese GEM to improve IPO efficiency, promote the health growth of the Venture Capital industry and achieve sustainable development of the GEM market.This paper use356listed companies’data in GEM from October2009to July2013. Firstly, this article studies the overall Venture Capital’s investment in GEM, including the characteristics of institutions, investment characteristics, investment term characteristics, investment industry characteristics and shareholdings characteristics; then discusses Venture Capital’s problems. Through Venture Capital’s performance analysis and theoretical analysis, this paper constructs multiple linear regression model to research the relationship between IPO underpricing and Venture Capital’s investment, and to verify the "certification role" in Chinese GEM market. Then use209listed companies invested by Venture Capital as research sample, to study whether the three Venture Capital’s characteristics including reputation, total shareholding and investment term will have impact on IPO underpricing. Finally, on the basis of the foregoing, this paper put forward some suggestions according to the current situation and existing problems of Venture Capital industry in the GEM.Through theoretical analysis and empirical research, this paper draws the following conclusions:(1) there is no significant difference of IPO underpricing rate between Venture Capital backed companies and non-Venture Capital backed companies, namely Venture Capital has no significant effect on IPO underpricing. So the "certification theory" verified by the western mature capital market does not apply to the Chinese GEM.(2) In the study of Venture Capital characteristics, empirical research results that Venture Capital’s reputation also has no significant effect on IPO underpricing rate. However, the Venture Capital’s investment term is significantly positively correlated with IPO underpricing rate, and the total shareholding ratio of Venture Capital is significantly negatively correlated with IPO underpricing rate.Although the research shows that Venture Capital made great contribution for the development of GEM, it also has some problems. Firstly, VC investment appears PE trend which disrupts the venture capital’s ecosystem development; secondly, there is a lot of interest transfer space in direct brokerage and can’t be resolved; thirdly, PE investment is getting homogenous which has a tremendous negative impact on the industry. Finally, this paper put forward some relevant suggestions from the perspective of venture capital institutions, entrepreneurs, investors and government agencies to reduce IPO underpricing.