Venture Capital, Process Of Marketalization And Underinvestment

MM theorem shows that investment opportunities are determined by the optimalinvestment decision and financing structure will not have any impact on investmentwhen meeting a series of perfect capital market hypothesis. However, in the realworld, these assumptions are untenable and the derived conclusions are not entirelyconsistent with the reality. The external investors can’t fully assess investmentprojects because there is a serious information asymmetry between external investorsand the internal management with result that the company’s external financing costsrise, the company faces financing constraints and it is difficult to raise sufficient fundsfrom outside to invest all projects with a positive NPV, thus causing underinvestmentproblem. At present, our country is in a special period of economic system transition.Inadequate investment and financing constraints become the two outstandingproblems in the development of enterprises due to the imperfect capital market, theuncertainty of the market and the financial institutions’ pursuit of security.China’s venture capital industry develops rapidly under the promotion ofmarket-oriented reforms. Venture capital can invest funds for the company, effectivelyalleviate the problem of financing constraints and improve the company’smanagement, promoting the company to make efficient investment decision.Currently, the academic study of venture capital mainly focuses on exploring its rolein the unlisted stages of the company, while less discussing the role in the companyafter its listing. However, as an equity capital, venture capital pursues the long-termgrowth benefits of the company and the situation that venture capital has not quit afterlisting is not uncommon. Therefore, exploring the role of venture capital aftercompany’s listing contributes to getting a more comprehensive understanding ofventure capital and introduces the venture capital to participate in the businessmanagement more effectively. Taking the venture capital as the breakthrough pointand starting from the venture capital’ impact on the investment behavior of listedcompany, this paper discusses whether adding the venture capital will have effect onthe relationship between the internal cash gap and inadequate investment on the basisof verification that internal cash gap will lead to underinvestment behavior. On theother hand, there exist big differences in the institutional background and investment behavior among countries. However, the scholars study without considering China’sinstitutional background at present. This paper studies whether the change of theexternal institutional constraints will lead to the change of the economic consequencefrom the perspective of process of marketalization, combining with China’s specialinstitutional background.This paper is organized as follows: First, this paper clarifies the researchbackground and significance, methods and ideas as well as the innovation. In the nextplace, this paper reviews the domestic and foreign scholars’ study on venture capital,investment efficiency and the process of marketalization and analyses the theoreticalbasis of this paper from the point of view of information asymmetry theory, thefinancing constraint hypothesis, reputation mechanism and relational contract theory.Then the paper puts forward four hypotheses based on the analysis of the above.Furthermore, this paper selects the data of listed companies in the Shenzhen StockExchange from2009to2013as observations to provide empirical evidence to studyon whether the venture capital will affect the inadequate investment phenomenoncaused by internal cash gap and the regulating effect of the process of marketalizationand legality level. Finally, this paper puts forward relevant policy recommendationsbased on the empirical conclusion.This paper draws the following conclusion: Due to the existence of asymmetricinformation, the phenomenon of inadequate investment is widespread in the firm. Thebigger the internal cash gap is, the more serious the inadequate investmentphenomenon will be. The venture capital alleviates the information asymmetryphenomenon, playing a negative role in the relation between inadequate investmentand internal cash gap. However, with the deepening of the process of marketalizationand the enhancement of legality level, the role which the venture capital plays will beweaken, that is to say, the venture capital’s negative role in the relation betweeninadequate investment and internal cash gap will be weaker in the highmarketalization process and high legality level area compared with the lowmarketalization process and low legality level area.Finally, this paper puts forward relevant policy suggestions from three anglesaccording to the conclusions. First, Foster environment for the development ofventure capital and establish incentive and restraint mechanisms. Second, introduceventure capital to participate in the business management and focus on theconstruction of internal and external synchronization. Third, guide the optimal allocation of resources and foster a favorable market environment.This paper enriches the literature in the field of venture capital and investmentefficiency and provides the relevant empirical evidence for the impact of venturecapital on listing corporation investment efficiency under the process ofmarketalization, which has great significance for optimizing investment behaviordecisions and provides a data reference for the government to formulate relevantpolicies on the development of venture capital.