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Empirical Study of Venture Capital’s Influence upon the IPO Underpricing in the Growth Enterprises Market

Author TangZhiGang
Tutor WangDong
School Harbin Institute of Technology
Course Business management
Keywords Venture Capita l (VC) Growth Enterprises Market (GEM) IPOunderpricing
Type Master's thesis
Year 2012
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Nowadays, researches about Venture Capita l’s influe nce upon IPO focus onthe certification function, screening and monitoring function, adverse selectionand grandstand ing effect that VC’s investment behavior may perform. However,the current study about which function or effect VC can perform in the ChineseGEM is still blank. Therefore, this paper tests the function and effect in theChinese GEM and explores the certain function or effect existing in the GEM.Meanwhile, the paper introduces the exp lanatory variables that is re levant to VCto test the influence upon IPO underpric ing.The paper firstly elaborat and discuss the theory of information asymmetryand the theory of VC’s function and effect. The paper set the ma in exp lanatoryvariab les and other expla natory variab les according to the reference of foreignclassica l model and the actua l s ituation of Chinese capita l market to build amultiple linear regress ion model. Furthermore, descriptive statistics have beendone on the overall deve lopment of venture capita l, IPO of the GEM and thecomb inatio n between venture capita l and IPO. In the part of emp irical research,The paper conducts mean-difference test on the VC backed IPOs and nonVC-backed IPOs to explore the function or effect that VC performs in theChinese GEM. Meanwhile, according to the model established previo usly, thedata of236IPOs listed on the Chinese GEM fro m the October30th,2010to June30th,2011is extracted. The paper uses the STATA software to do the multip lyliner regression and obtain the ma in result: The certification and screening ro leplayed by VC have not showed in the Chinese GEM, while VC performssignificant adverse selection effect and grandstand ing effect in the Chinese GEM.Then, at the5%leve l, there is a significant positive correlation between VC andIPO underpric ing degree. Moreover, the characteristic of VC’s share ho ldingshave no significant influe nce upon IPO underpric ing. Last, both the experienceof VC and the number of VC ha ve significantly negative influence upon the IPOunderpric ing degree.

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