The Effect of Venture Capital Investment — Evidence from China's Small and Medium‐Sized Enterprises Board

20 Pages Posted: 13 Dec 2012

See all articles by Yi Tan

Yi Tan

Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management

Hong Huang

City University of Hong Kong

Haitian Lu

Hong Kong Polytechnic University - School of Accounting and Finance

Date Written: January 2013

Abstract

In this paper, we use a matched sample to empirically test the effect of venture capital investment on the companies listed on the Small and Medium‐Sized Enterprises Board in China. We find that Chinese venture capitalists neither add value to their invested firms in the initial public offering (IPO) process nor improve operating performance. Rather, compared with their non‐venture‐backed counterparts, venture‐backed firms are associated with a greater level of IPO underpricing and inferior operating performance both before and after IPO. Our findings in China support neither the certification/monitoring hypothesis nor the grandstanding hypothesis, but partly support the adverse selection hypothesis.

Suggested Citation

Tan, Yi and Huang, Hong and Lu, Haitian, The Effect of Venture Capital Investment — Evidence from China's Small and Medium‐Sized Enterprises Board (January 2013). Journal of Small Business Management, Vol. 51, Issue 1, pp. 138-157, 2013. Available at SSRN: https://ssrn.com/abstract=2188771 or http://dx.doi.org/10.1111/j.1540-627X.2012.00379.x

Yi Tan

Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management ( email )

535 Fahua Zhen Rd
Shanghai 200052
Shanghai
China

Hong Huang

City University of Hong Kong ( email )

Kowloon Tong
Hong Kong

Haitian Lu

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

M715, Li Ka Shing Tower
Hung Hom, Kowloon, Kowloon
Hong Kong

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