| Summary: | Abstract
In this study, an empirical test is conducted to examine the effect of venture capitalists (venture capital firms) on issuing firms listed in China Shenzhen Growth Enterprise Market (GEM) Board. Unlike with previous researches which focus on developed market, this study try to find out the influence of venture capitalists in an emerging market. An unmatched sample set of 149 VC backed and 59 non-VC backed IPO firms listing at GEM Board from 2009 to 2011 is selected. Independent sample t-test and non-parameter Mann–Whitney U test are deployed to test the difference between the two sample groups and regression analysis is presented to further investigate the role of venture capitalists in IPO underpricing by controlling other factor. Just as expected, the result shows the effects of venture capitalists in IPO firms are complicated. Firstly, it indicates VC backed issuing firms have a better financial performance than non-VC backed firms, but there is no significant evident for the superior operating performance of firms backing by venture capitalists. The possible reason might be the presence of adverse selection problem. Meanwhile, we also cannot prove that the VC backed IPO firms are younger than non-VC backed. Furthermore, the test fails to support the certification effect of venture capitalists proposed by preceding researches. Although issuers backing by VC attract higher-quality underwriter, the level of underpricing is also increased and no significant evidence for lower offering costs and higher IPO pricing than firms without VC backing. It might be caused by the existing of ‘Grandstanding’ problem.
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