Venture Capital, Corporate Governance And IPO Underpricing

The ChiNext Market was formally established in2009. As a high-tech company’s capital raising vehicle, the ChiNext Market has attracted the attention and involvement of many venture capital institutions, which generally invest from company’s infancy, and penetrate those companies to help them in the IPO market. With the proportion of ChiNext Market public companies with venture capital background increasing, it has led to the IPO underpricing phenomenon. Because the most common way of venture capital to get out of the investment is from IPO, and also it is relatively easy to access to the non-public information of the companies before they become public ones, the research focusing on public companies with venture capital background has been turned into the one focusing on the venture capital’s price influence on the company, that is whether there exists underpricing. At the same time by classifying and comparing those IPO companies in China’s ChiNext Market it is found that venture capital’s function and influential extent affect the company’s IPO, and in particular whether the venture capital institutions send a senior to be the director or not in the company or participate in its management and supervision of the invested company really count. The paper deeply explores the underpricing phenomenon from those aspects.The paper, taking the306ChiNext Market IPO companies (from October30,2009-to April10,2012)as research objects, empirically analyses their short-term performance-that is the IPO underpricing impact, explores the function of venture capital in the role they play in the process of the establishment of those public companies, verifies the applicability of the western theories in order to provide wise decisions for the company who is seeking venture capital.The paper also analyses venture capital’s impact on the public companies from the aspect that whether they send directors or not.At the beginning the paper illustrates some relative fundamental concepts and researches based on the two hypotheses--"information disclosure and certification" and "by name", which are widely and effectively used to explain IPO underpricing in China and analyses the IPO underpricing mechanism which is affected by the venture capital and the directors they send to the companies as well. Then it selects306public companies (2009-2012) as samples to study empirically the relationship among the venture capital, directors and underpricing by obtaining venture capital’s relative data from the company’s prospectus in China, testing the impact of the venture capital’s penetration and director to the company and depending on descriptive statistics, parametric tests and multi-line stepwise regression as wellThe empirical study shows that:(1) China’s venture capital institution plays the role of certification to the company, its monitoring role has been recognized by the capital market. The underpricing ratio of the company with venture capital background is lower than the one without venture capital background.(2) The underpricing ratio of the company with arranged director is higher than the one without arranged director which testified the "by name" hypotheses.(3) The higher of the company’s actual issuance fee of each stock the higher the underpricing ratio, In the end the paper summarizes and provides some constructive suggestions for the underpricing stability.