289 other investment channels and the limited supply of publicly available shares. The reason is that
shares owned by the government or legal institution were not allowed to trade publicly after the IPO, which is represented by PERCENT here.
Ta le : Li ear regressio a al sis et ee the IPO u derpri i g a d fir spe ifi aria les a d o trol aria les
Dependent Variable
IR Column1
Column2 Independent
constant 1.6828
1.8201 variables
1.8106 -1.9225
IPO characteristics: LPROCEEDS -
0.9000 -
0.9644 -7.3816
-2.5626 VCDUM
- 2.0085
- 0.4480
-1.9582 -0.3993
LNUM 0.3133
0.8064 DAY
- 0.0048
-0.6860 PERCENT
- 0.6730
-3.3594 ISSP
0.0051 0.7235
Firm-level features: LSALES 0.3195
0.2602 2.9207
2.3906 LASSET
0.2414 0.0568
2.0131 0.4319
AGE -
0.0004 0.0058
-0.0004 0.5882
R-squared 0.3007
0.3572 Adjusted R-squared 0.2787
0.3199 F-statistics
13.6735 9.5719
P-value 0.0000
0.0000
Notes: Significant at: 10, 5, and 1 percent levels, respectively. T
-
statistics appear in parentheses.
290
4.1.3 IPO Valuation Ta le : Mea PE of VC- a ked IPOs a d No -VC- a ked IPOs
IPO cases VC-backed
IPOs NON-VC-backed
IPOs T-statistic
Sample SizeNVNVC
PE ratio 32.5961
31.3602 -
0.4125 7850
This paper uses PE ratio to measure IPO pricing, which is defined as the ratio of the offering price to earnings per share before the IPO Tan et al., 2013. Table 10 shows that the difference
of IPO pricing is not significant between VC and non-VC IPOs. The similar PE ratio between non-VC and VC-backed ones shows a insignificant difference in the IPO pricing. Thus H3 could
not be rejected as the t-statistics with -0.4125 is not significant. It reflects that VCs could not significantly impact the pricing of the IPOs.
4.2 Post
-
IPO Market performance Ta le : Mea e ess retur of VC- a ked IPOs a d No -VC- a ked IPOs
VC-backed IPOs NON-VC-backed IPOs
T-statistic One-month excess return
- 0.0987
- 0.2306
- 1.5868
Three-month excess return -0.1675 -
0.2522 -
1.1753 One-year excess return
- 0.3265
- 0.3588
- 0.3945
Notes: Significant at: 10, 5, and 1 percent levels, respectively.
Table 10 shows the one-month, three-month and one-year excess returns after the IPO of VC- backed firms and non-VC-backed ones. We use one-month and three-month buy-and -hold
market returns to examine short-term performance and one-year excess return after the IPO to
study the long-term market performance Wang et al., 2003.
From Table 10, returns two counterparties are not economically different in terms of short-term and long-term. This indicates that VC-backed IPOs and non-VC-backed IPOs perform at the
same level. Neither the positive effect of certificationmonitoring model nor the negative effect of adverse selectiongrandstanding model to the market performance is evidenced here.
It can be seen that both VC-treated IPOs and Non-VC-treated IPOs perform better in the short run after the IPO than the long run, though the difference is not economically significant. This is
in line with the findings of Wong and Wong 2008 that VC-backed IPOs perform better in the short-term but different from the conclusion that VC-backed IPOs have better long-run market
behavior.
4.3 Post
-
IPO Operational performance Ta le : Operatio al perfor a e of VC- a ked IPOs a d o -VC- a ked IPOs
Pa el A: The first ear after the IPO:
IPO cases VC-backed IPOs NON-VC-backed
IPOs T-statistic
Sample SizeVCNVC
EPS 0.5788
0.5248 -
0.4798 6044
ROA 0.0567
0.0750 2.1657
7548 ROE
0.0614 0.0897
1.9511 7548
Margin 0.0921
0.1621 3.7147 7548
Notes: Significant at: 10, 5, and 1 percent levels, respectively.
291
Pa el B: The se o d ear after the IPO:
IPO cases VC-backed IPOs
NON-VC-backed IPOs
T-statistic Sample
SizeVCNVC EPS
0.5279 0.4036
- 1.0585
4351 ROA
0.0487 0.0632
0.9387 5944
ROE 0.0707
0.0766 0.3863
5944 Margin
0.0654 0.1280
2.5582 5944
Notes: Significant at: 10, 5, and 1 percent levels, respectively.
VCs could monitor the IPO process and contribute to a greater post-IPO operating performance based on the certification model. We use several financial ratios to represent the operating
performance of treatment and control groups in the post-IPO period. The ratios include operating profit margin operating, return on equity ROE, earning per share EPS and return on assets
ROA. Table 11 compares the operating performance between VC-backed firms and their counterparties
in terms of EPS, ROA and EPS leads to opposite conclusion compared to other three financial ratios. In terms of margin, ROE and ROA, non-VC-funded IPOs performed better than VC-
funded IPOs both in the first year and the second year after the IPO. In the first year after the IPO, the EPS for VC-backed IPOs are higher than those for non-VC-
backed IPOs though not statistically significant. The financial ratios such as operating profit margin, ROE and ROA of VC-funded IPOs, are lower than non-VC-funded IPOs by a significant
amount. Four financial ratios show conflict conclusions. Regarding EPS, the fifth hypothesis fails to be rejected both in the first year and second year. As to the rest, it is worthwhile to notice
that the fifth hypothesis is rejected in the first year but fail to be rejected in the second year. That is, in the first year after IPO, the VC-treated firms perform poorer than non-VC- treated firms to
a significant extent. However, in the second year the difference is not significant, so we could not reject the hypothesis that VC-backed firms have the same-level performance as non-VC backed
firms in EPS, ROA, ROE, and operating profit margin. The finding conflicts with the certification model that VC firms add value to portfolio firms by
certifying them as the most promising ones. Hence, adverse selection model is evidenced. The poorer performance has been investigated by previous studies in China. Wang et al. 2003 state
that grandstanding is intense in emerging markets as a number of new VC firms that do not have a long track history. Though their parental backgrounds might be strong, they still need
observable performance to build reputation and to raise the continuous fund to survive in the future. Furthermore, they are inexperienced in identifying investment opportunities in these new
regions as well as understanding the local market. Another explanation by Chan et al. 2004, Wang 2005 and Tan et al. 2013 is that the drop in ROA is caused by a ‘window-dressing’
attempt before the IPO instead of a decline in business activity, especially when at that time sales continue to increase.
