The Effect Of VCs Reputation On GEM IPO Underpricing And Performance

The establishment of China’s growth enterprises market (GEM) board in2009has made a great contribution to improve the multi-level capital market of China. Before the establishment of the GEM, the domestic scholars could only use the data from Small and medium enterprises (SME) board or even main board to study the domestic venture capital (VC) and its impact on firms. But the establishment of China’s GEM makes the data source more suitable.Theoretical research and practice show that venture capitals (VC) invested companies with screening, training, supervision, etc. And reputation is an important intangible asset for company, and this is especially true for VC. Differences of reputation will affect its role in VC. Since its inception in2009, the majority of Chinese companies listed on GEM face high issue price, high price-earnings ratio, superb fund-raising and poor performance. On the one hand, VCs, which invested the IPO companies, got a great return. On the other hand, they cash out immediately after the lifting of the ban. Therefore, we have to think about the role of VC in the IPO process of the ChiNext companies, especially the low reputation VC that lack of ability and experience.Considering the provision of limited-sale of GEM, and to observe more activities of VCs after the end of the limited-sale period, this paper taking the153companies listed on GEM at the end of2010as samples. For better respond to the company’s long-term development capacity, this study is only concerned the sample companies’long-term performance. And this study attempted to solve the following problems through empirical methods:Among VC-backed companies, what the impact of different reputation on the IPO underpricing and Post-IPO long-run performance is. This study presented two underlying assumptions based on literature review as well as venture capital and development status of GEM to sort out. Then, these two underlying assumptions were verified through descriptive statistics and multivariate linear regression analysis and so on. The main conclusions of this study are as follows:IPO underpricing of companies backed by high reputation VC would be higher. Reputation of VC has no significant associations with IPO underpricing and Post-IPO long-run performance.