IPO Suspensions and Venture Capital Activity

45 Pages Posted: 23 Feb 2021

See all articles by Jo-Ann Suchard

Jo-Ann Suchard

UNSW Business School; Financial Research Network (FIRN)

Mark Humphery-Jenner

UNSW Business School; Financial Research Network (FIRN)

Zhiyi Qiu

Shanghai University of Finance and Economics, School of Public Economics & Administration, Students

Date Written: February 19, 2021

Abstract

The potential to exit companies through Initial Public Offerings (IPOs) is argued to be critical to the existence of an active venture capital (VC) market. However, this can be difficult to test due to endogeneity concerns. We use the suspension of China’s IPO market as an exogenous shock. We analyse the impact of IPO suspensions on VC investment, exit mechanisms and fundraising. We find that contemporaneous VC investment decreases. VCs are more likely to invest in high tech and less likely to invest in late stage and syndicated deals. Companies that received investment during an IPO suspension are less likely to be exited and take longer to exit. IPO suspensions significantly increase the likelihood of an exit via takeover and international IPO markets. Further, both the number of new funds raising capital and fund target amounts decrease. The results suggest that lack of access to public markets dampens VC activity.

Keywords: Venture Capital, China, IPO

JEL Classification: G24, G34, G38

Suggested Citation

Suchard, Jo-Ann and Humphery-Jenner, Mark and Qiu, Zhiyi, IPO Suspensions and Venture Capital Activity (February 19, 2021). Available at SSRN: https://ssrn.com/abstract=3788720 or http://dx.doi.org/10.2139/ssrn.3788720

Jo-Ann Suchard (Contact Author)

UNSW Business School ( email )

high street
High St
sydney, NSW 2052
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Mark Humphery-Jenner

UNSW Business School ( email )

UNSW Business School
High St
Sydney, NSW 2052
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Zhiyi Qiu

Shanghai University of Finance and Economics, School of Public Economics & Administration, Students ( email )

Shanghai
China

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