Grandstanding and New Stock Speculation: Evidence from Private Venture Capitals in China

Long Wu and Lei Xu

Australian Economic Papers, 2018, vol. 57, issue 3, 363-375

Abstract: Reputation is of vital importance to venture capitals (VCs). Emerging young VCs may have more incentives to grandstand through initial public offerings (IPOs) in the stock market. We examine grandstanding and IPOs on the Shanghai and Shenzhen stock exchanges between 5 June 2006 and 10 May 2012 when deregulation allows explosive growth of VCs in China. We find that grandstanding is mainly by the private VCs and has noticeable impact on the two stock exchanges. Furthermore, private VCs heavily grandstand through speculation of newly listed stocks rather than through underpricing among early IPOs. Joint investment by private and non‐private VCs may effectively inhibit the speculation of new stocks. Our findings have policy implications in the largest emerging market's context.

Date: 2018
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