Risk Investment In Initial Public Offering Discount Empirical Research

This Paper focuses on the venture capital-backed (VC-backed) initial public offerings (IPOs) in China Small Medium Enterprise Board (SMEB) and China Growth Enterprise Market (GEM), via checking 762 IPOs from 2004 to 2011 1st Quarter, this paper studies the underpricing degree and underwriting cost of these IPOs. Comparison, correlations and cross sectional regression indicates the following conclusions:the China venture capital backed IPOs are tending to have a significantly higher underpricing degree, but further studies on venture capital reputation and age shows that grandstanding effect is hard to find, and it indicates that almost all venture capital firms in China are young and have demand of establishing their reputation via large initial return. Moreover, the ownership structure of venture capital firms is irrelevant to their issuing underpricing degree. Last, underwriting cost is found to be linked closely with underwriter reputation but not the venture capital backing. In summary, the venture capital backing initial public offerings are costly for the issuers because of the underpricing and underwriting cost combination effect.