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Venture capitalist participation and the performance of Chinese IPOs

Isaac Otchere and Anna P.I. Vong

Emerging Markets Review, 2016, vol. 29, issue C, 226-245

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.

Keywords: Venture capital; Initial public offering; Structural power; China; Reputational capital (search for similar items in EconPapers)
JEL-codes: G24 G34 (search for similar items in EconPapers)
Date: 2016
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Handle: RePEc:eee:ememar:v:29:y:2016:i:c:p:226-245