The Impact Of Private Equity On The Performance Of Chinext Board Firms Before And After IPO

ChiNext board has always been the focus of the capital market since its opening, mainly because of the listing firms’high pre-IPO growth, extremely high offering price, P/E ratio and offering amount, and especially surprising performance decline after IPO. In this market, Private equity capital has been playing an important role by providing convenient financing channels to invested firms and helping them improve governance structure and operating performance. By comparing the pre-IPO and post-IPO financial performance of ChiNext board firms, the difference between PE firms and Non-PE firms before and after IPO, this paper tries to find out the impact of private equity on the operating performance of firms. This paper manually sorts prospectus to confirm the information of firm with or without private equity, the ratio and holding period of private equity capital, and then compares financial indicators performance prior and after the listing, find that:1. Most ChiNext board firms’ financial indicators have showed a significant decline after IPO, but not high growth and profitability.2. Private equity does not relieve companies’post-IPO performance decline, nor help to improve operating performance after IPO, but has positive effects on profitability ratios and asset growth rate before IPO.3. High reputation Private Equity capital and capital with long holding period has a negative impact on the pre-IPO financial ratios, but also relieve the post-listing operating performance decline. Private Equity reputation, holding period and share ratio also have no impact on post-listing performance, so these Private Equity institutions also provide no better value-added service.Based on these findings, this paper further explores how private equity influence ChiNext board firms.1. To get listed, small and middle firms have strong motivation for earnings, management, so naturally their operating performance declined significantly.2. Private equity institutions do not provide real value-added services to help firms to improve, but just help them earnings management before IPO because of strong incentives to quit via invested companies’IPO. Also, companies with good operating performance also attract private equity capital easily since they are easier to get listed and have high stock price.3. Private equity capital with high reputation and long holding period have weaker incentives to help firms earnings management, so their invested firms show lower pre-listing performance but also less post-IPO decline. They also do not provide real value-added services. Finally, based on the above findings, this paper puts forward some suggestions to the reform of ChiNext board market and Private Equity market.