Post Empirical Results and discussion

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.