Study Of Private Equity Fund’s Investment Behavior

According to the domestic and foreign literature.Private Equity Fund("PE"for short) refers to a kind of Private Fund that the capital from specific institution or person and its investment target is Pre-IPO companies.Its final purpose is to gain risk premium.PE Fund is able to solve the financing problem of small and medium enterprises(SMEs) and also participate in the enterprise’s supervise to improve value.This pattern is spread in China recently and Chinese Growth Enterprise Market launched in2009.So it is absolutely that the PE will face a fast development.Generally,Lots of foreign research reflected that PE fund can affect listed business performance.Main research achievements are listed:(1)"Certification Effect"(Megginson and Weiss,1991,and so on).It said that PE has outstanding investment skills.At the same time,company value can be improved by PE’s help.PE’s investment can transfer a signal to other participants.(2)"Adverse Selection"(Amit et al.,1990and so on).It said that the asymmetric information existed between PE and Pre-IPO company will cause poor company tend to introduce PE to inner management,so the discounting rate will be raise.Similarly,Chinese scholars (Zhang Xueyong,Liao Li,2011;Chen Gongmeng,Yu Xin,Kou Xianghe,2011)found that PE can affect IPO discounting rate and their research supported the "Certification Effect" theory.Differ from foreign PE study which focus on the IPO discounting rate.this paper studied three aspects to inspect whether the Chinese PE has reasonable and professional investment behavior.We consider the determinant factors of PE equity ratio and valuation,GEM company performance after IPO.Deeply research whether "Certification Effect" or "Adverse Selection" theory fits in China.Examined the349GEM enterprises’three-year annual report before IPO from prospectus,which listed on the GEM board from2009to2012,we manually collected PE equity data.Based on our data,we regressed the PE equity ratio and financial data(one-year before PE entered) to find what characteristics determined PE equity ratio.And we found that PE ratio is positive correlation with the prime operating revenue growth and negative with company scale,PE has no relation with ROE.It concluded that PE prefer high growth small company. Secondly,we examined the factor affecting PE valuation,found that P/E ratio is positive correlation with company growth which means PE has a reasonable valuation behavior.At last,we separated the sample into2groups,one is companies that PE involved,one is not.The result is that there is no statistical significance difference between the companies which PE participated and which didn’t.In short,Chinese PE is a "real" growth investor, although it didn’t improve company future financial performance.Our results supported the "Certification Effect" rather than "Adverse Selection".The paper enrich the emerging market PE investment behavior from a specific point of view.It helps to clarify the contradiction between "Certification Effect" and "Adverse Selection" theory.And it has important value to SMEs financing,GEM invest strategy and supervise policy.