Asia-Pacific Journal of Business (아태비즈니스연구)

KNU The Institute of Management & Economy Research (강원대학교 경영경제연구소)
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Venture Capital Investments and the IPO performance of Chinese Firms

  • Received : 2022.06.01
  • Accepted : 2022.06.27
  • Published : 2022.06.30
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Abstract

Purpose - The purpose of this study is to examine the effect of VC investment on the IPO and post-IPO performance of Chinese firms. Design/methodology/approach - By utilizing CSMAR and VentureXpert database, we construct a firm-year panel data covering all listed firms in the Chinese stock market from 2006 to 2018. Findings - First, we find that VC-backed firms are significantly less underpriced than non-VC-backed firms. Our results show that the initial IPO-day return of VC-backed firms is 0.16% lower than that of non-VC-backed firms. Next, we find that VC-backed firms demonstrate significantly worse operating performance than non-VC-backed firms after the IPO. In the next three years following the IPO, VC-backed firms underperform non-VC-backed firms by 0.4% in terms of ROA and by 0.6% in terms of ROE. Research implications or Originality - Our results support the Grandstanding Hypothesis, among several competing hypotheses regarding the effect of VC investment, which suggests that VCs window dress their IPO firms for their early exit at the expense of a poor operating performance of the IPO firms after going public.

Keywords

Acknowledgement

This work was supported by the 'BK21 FOUR (Fostering Outstanding Universities for Research)' in 2021.

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