An Empirical Analysis Of The Impact Of Venture Capital Shareholding On IP0 Underpricing

Since Ibboston proposed the phenomenon of IPO underpricing, this problem had always been a hot topic in investing area. About the reason of IPO underpricing, there are many reasons due to the difference between the different stock matket in different countries. As an emerging market, Chinese capital market has a higher IPO underpricing than other countries’ capital market in both A-share market and Chi Next stock market. We found that the biggest difference between the two markets is the number of listed companies backed by the venture capital institutions. According to Zhu Yuanjia &Liyang, more than half of the listed companies are backed by the venture capital institutions. The participation of VC has made the relationship between the participants more and more complex. So the scholars from home and abroad has made the problem a focused topic.There are many reasons which could explain the IPO underpricing. Some factors would have a positive effect while some have a negative effect. Some theories which can be applied in these countries’ market may not be used in the same way. Based on the theories, this paper proposes assumptions and selects the total shareholding of VC companies as the main factor. And at the same in order to make the model more accurate many related factors are selected as the controlling factors. Later a multiple linear regression model is set up to do the empirical research to analyze how the total shareholding of VC influence the IPO underpricing. Furthermore, we also divide the sample into two different samples to analyze which one has a stronger effect.Using a data base of 396 Public companies from September 30 th, 2009 to October 10 th, 2014 on Chi Next, we finally come to two main conclusions. The first one-investors would anticipate that the VC will release their share when the banned period is over and the releasing of share would have a negative impact on the share price, so they would lower the values of the new listed stocks. So the total share proportion of all venture capitalists can significantly explain the IPO underprieing. The higher the share proportion of all venture capitalists is, the lower the IPO underpricing will be. The second one-the venture capitalists would face more risk if they invest on the high-tech companies. They would have a stronger motive to release their share. Then the negative effect would be more serious. In the same way, the high-tech listed companies have a lower IPO underpricing than the non-high-tech listed companies. In order to meticulously testify that the venture capitalists do have the behavior of releasing of share, this paper add one a multiple linear regression model to support the assumption. At last, based on the former 5 chapters, we propose some advices for the related regulatory authorities,the Venture Capitalists and the investors, also hoping that these advices would play a role in making China’s capital market more efficient and sound.