Venture Capital And Enterprises' Diversification Of GEM

Venture capital is an important source of financing for GEM enterprises before their IPO.With the rapid economic growth in recent years,China's venture capital market has achieved considerable development and gradually become mature.On the other hand,the successful launch of GEM in China also provides an appropriate exit channel for venture capital institutions,which further stimulating their investment enthusiasm.At present,the related research of venture capital institutions has become the focus in academic circles,but related research at home and abroad is still limited to how venture capital institutions affect the discount rate and performance after IPO,etc.But when it comes to the research about venture capital institutions' influence on the strategy choice of companies,especially the diversification strategy,there is still at a blank stage.According to many scholars' research from both at home and abroad,the venture capital institutions tend to guide the strategy of the invested enterprise as an "active investors" in the process of management after investment.Whether such kind of guidance have a certain impact on the diversification strategy selection and degree of diversification of the invested enterprises? Besides,will the impact be different depending on the characteristics of venture capital institutions?From the perspective of companies' diversified business and related market risk,the paper does some research about the correlation between venture capital's infusion and companies' level of diversification and its related risk at the time of initial public offering on the base of GEM listed companies' data in China.This study comes to a conclusion that the infusion of venture capital will significantly improve the level of companies' diversification.The Venture capital institutions which have government background and industry specialty could more obviously promote level of companies' diversification.This research finds diversified strategy could add some market risk to companies as well,and the tutoring of venture capital could mitigate it obviously,and this kind of effect will be more prominent if venture capital have government at its back or have a high level of industry specialty.Further,this paper find that the reason why venture capital institutions can promote diversification and restrain the related market risks may be related to the effective reduction of agency costs and financing constraints of invested companies.This research's conclusion on the one hand points out the possible augment of market risk which caused by diversification to all companies that want to try some diversified business.On the other hand it provides a risk mitigation path which is attracting venture capitals and in which companies could mitigate the risk caused by diversification.