The Effect Of Venture Capital On The Investment Activity Of Portfolio Firms

Investment is the key to the growth of a company,and also the basis for the survival and expansion of the company.With lack of investment,the company will not be able to obtain and expand production capacity to achieve potential growth.The company's investment level and financing decisions are closely related to capital adequacy level.Venture capital is the main source of financing of entrepreneurial enterprises in the growth process,with characters of short cycle and high return rate,also the venture capital supervision and certification effect,and it may produce multiple effects to the portfolio companies' investment behavior.China's developed venture capital industry and it is playing a more and more important role in the capital market.The current research on venture capital are mainly concentrated on the influence of the successful listing of portfolio companies,IPO performance and financial returns of venture capital.There is not enough research on the impact of venture capital on portfolio companies' investment behavior.The research on the effect of venture capital on the overinvestment or underinvestment of portfolio companies has a great significance for understanding the mechanism of venture capital.Based on domestic and foreign research,this paper extends the sample is to the three years before IPO.And by selecting the Internet industry which is under high uncertainty,this paper discusses the impact of venture capital on portfolio companies' overinvestment and underinvestment behavior,filling the gaps between domestic research and foreign research.This paper selects 615 listed companies on GEM(Growth enterprise market)as the initial sample,with pre-IPO financial data from the prospectus and post-IPO financial data to 2016,to analyze the effects of venture capital on portfolio companies' investment behavior.It is found that the entry of venture capital can restrain the overinvestment of free cash flow,and the influence of underinvestment is not clear.And the model is modified to study the Internet industry.The results show there is no correlation between the overinvestment and free cash flow,but the Internet companies' investment behavior also restrained by shortage of cash flow constraints.However,in Internet industry,the venture capital's influence on portfolio companies' investment behavior is not clear.The results of this paper have important theoretical and practical significance.First of all,this paper finds that venture capital can not only provide funds for the development of the company,but also can influence the investment behavior of the portfolio company by removing the financing constraints and solving the agency problem.Secondly,this paper explores the impact of venture capital on investment behavior in the industry under high uncertainty,presenting a more comprehensive understanding of the impact of venture capital on corporate investment behavior,providing the basis for subsequent research.Furthermore,the results of this paper provide theoretical guide for the government to formulate relevant policies to improve the venture capital supervision,and provide theoretical reference for the company managers about introduction of venture capital investment and financing decisions,and also provide reference information for the investors to choose whether to invest companies with venture capital background.There are five chapters: the first chapter introduces the research background,creativity and framework.The second chapter is literature review,which summarizes the influence of Chinese and foreign scholars' research on venture capital and corporate investment.The third chapter is the frame of the research,introducing the hypothesis,the selection of samples,data sources,the definition of variables,and the empirical model.The fourth chapter is the empirical results,including descriptive analysis of the variables,the analysis of company's investment behavior and cash flow correlation,and the test of the impact of venture capital on corporates' overinvestment and underinvestment behavior.The fifth chapter is the conclusion analysis.