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.

Additional Metadata
Keywords China, Initial public offering, Reputational capital, Structural power, Venture capital
Persistent URL dx.doi.org/10.1016/j.ememar.2016.08.010
Journal Emerging Markets Review
Otchere, I, & Vong, A.P.I. (Anna P.I.). (2016). Venture capitalist participation and the performance of Chinese IPOs. Emerging Markets Review, 29, 226–245. doi:10.1016/j.ememar.2016.08.010