Venture Capital To Support The Company's IPO Performance

There are5hypothesizes about venture capital’s effect on IPO performance:certification hypothesis, screening and monitoring hypothesis, market-power hypothesis, adverse-selection hypothesis and grandstanding hypothesis. Compared to SME in SES, the relationship between venture capital and GEM is closer, but the study on such effect and function is on the ground.We choose355listed companies from GEM in Shenzhen Securities Exchange as the sample, to study the different IPO performance between VC-backed companies and Non-VC-backed companies, through comparative analysis and multiple linear regressions. We find that the performance of VC-backed companies is worse than that of non-VC-backed companies, both before and after IPO, which means that the screening and monitoring from venture capital does not exist. That only the entrepreneurs with low capability will seek for the involvement of venture capital reflects that adverse selection problems resulting from asymmetric information in private equity market. The certification from venture capital cannot be confirmed because the underpricing rates of VC-backed companies are higher than that of non-VC-backed ones. However, grandstanding is obvious. What concerns to venture capital is success in IPO. No matter pushing high growth rate or hiring underwriters with high quality is to ensure the success of IPO. Meanwhile, the perspective of investors to the listed companies will not affected by the background that whether venture capital is one of the shareholders. This results in that market power from venture capital is not obvious. Finally, the high underpricing rate is positively correlated with the P/E on the first day of listing.