The Impact Of R&D Investment And Venture Capital On Enterprise’s IPO Underpricing

Research and development activity is an important force to promote enterprise’s value. R&D information plays an important role when investors make decisions. However, the accounting information that listed companies disclose is not very well that it causes serious information asymmetry between enterprises and investors. Venture capital institutions invest money to enterprise, then they can be managers. The multiple identities make them have an effect on IPO. Utilizing information asymmetry theory and signaling theory, many studies have demonstrated that both venture capital investment and R&D activities can be important factors that influence IPO underpricing. However, there is nobody to research how venture capital affects the relationship between R&D investment and IPO underpricing.The study drew samples from 355 IPO companies that registered with growth enterprise market(GEM) between 2009 and 2012. Based on the data from IPO prospectus and CCER database, this paper tested the relationship between R&D investment and IPO underpricing, at the same time it tested the relationship between venture capital and IPO underpricing. Furthermore, this paper discussed the venture capital’s influence on the relationship between R&D investment and IPO underpricing. Considering the time lag of R&D investment to future earnings and the different level of IPO underpricing in different industries, we introduced the time lag(t=0,1,2,3)and dummy variable industry in the model. The empirical results showed that R&D investment in different time lag had a positive influence on IPO underpricing and significant at the 1% level. IPO underpricing level of the enterprises that gain supporting of venture capital was higher than those have no venture capital supporting, but the relationship was not significant. The certification role of venture capital is not established in China which is different from abroad. The participation of venture capital cannot play a certification role on reducing the uncertainty of R&D activities. Thus IPO underpricing of research and development enterprises cannot be reduced effectively. Finally, this paper puts forward some suggestion, for example reducing the degree of R&D information asymmetry, improving the participation of venture capital.