An Empirical Study On The Underpricing Of Venture Capital Backed IPOS In GEM And SME

Initial Public Offerings(IPO) underpricing is considered to be one of the threemajor research topics in the IPO research field. In recent years, with the developmentof domestic venture capital industry and the launch of the growth enterprisemarket(GEM), scholars have started to research how venture capital affects IPOunderpricing.In view of this, According to certification theory and grandstanding theory，thispaper examines the assumption and builds multiple regression models. Then thispaper studies how VC influence IPO underpricing in the small and medium-sizedenterprise(SME) and GEM. Furthermore, this essay explores the relationship betweenVC characteristics and IPO underpricing. The data sample is from September18,2009to June28,2012, which includes664listed companies’ offering price, initialclosing price, characteristics of venture capital companies. These characteristicsinclude reputation, nature of equity, investment term of venture capital corporation,joint investment or not and stage of development of listed companies. Conclusions asfollowing:Firstly, IPO underpricing of VC-backed companies is higher thannon-VC-backed companies on both GEM and SME, which is consistent withgrandstanding theory.Secondly, grandstanding theory hypothesis is applying to GEM and SMEsegmentally. And also the conclusions are not agreeable in these two markets.Thirdly, the companies invested by lower reputation VC experience higher IPOunderpricing in the GEM. The companies in the early stage invested by lowerreputation and longer investment period VC experience higher IPO underpricing.Fourthly, the hypothesis of companies invested by foreign capital and mixedcapital VC experience lower IPO underpricing is not tested in this paper.