Venture capitalist participation and the performance of Chinese IPOs |
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| Affiliation: | 1. Sprott School of Business, Carleton University, Ottawa, Canada;2. University of Macau, Macau;1. Shanxi University, China;2. University of Manitoba, Canada;3. Renmin University of, China;4. Xi''an University of Finance and Economics, China;1. Graduate School of Business Administration, Kobe University, Japan;2. Schulich School of Business, York University, Canada;1. School of Management, Xi''an Jiaotong University, China;2. Shanghai University of International Business and Economics, China;3. Postal Savings Bank of China, Shaanxi Branch;1. Department of Finance, University of South Florida, Tampa, FL 33620, United States;2. Department of Finance, Rensselaer Polytechnic Institute, Troy, NY 12180, United States;3. Finance Division, Babson College, Babson Park, MA 02457, United States |
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| Abstract: | We examine the effects of venture capitalist participation in IPOs in China and find that VC-backed firms are more underpriced than non-VC firms. Both VC-backed and non-VC-backed IPOs experience long-run underperformance; however, VC-backed IPOs perform significantly better. The higher level of underpricing and cost of going public for the VC-backed firms are consistent with the monitoring role of the VC. Finally, the fact that VC reputation is associated with lower underpricing is consistent with the reputational capital theory, which asserts that reputable VCs use their expertise and experience to minimize underpricing in order to preserve their reputational capital. |
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