Study Of The Performance Of PE-Backed Firms In Chinese Stock Market

Private Equity has become the fourth way for enterprise to finance in addition toloaning from commercial banks, issuing bonds and stocks with the development ofChinese financial market. However, the Chinese private equity market is inefficient due tothe short development time. It has become a controversial phenomenon and people havedifferent opinions on its effects on companies. Supporters believe the Certified effect"and" Regulatory effect can improve companies’ value; the others take opinions that thereare Grandstanding and Adverse selection in the private equity market since the marketis insufficient, which is harmful to the development of companies. This paper studyprivate equity financing’s effects on the company, and then discusses its economicmeaning to the current Chinese capital market.This paper makes empirical study on355companies listed on Chinese GrowthEnterprise Board with the Eviews. We analysis the Overall sample and the PE-Backedsample respectively. In this paper, IPO underpricing rate is used to measure companies’market performance, ROE is used to evaluate companies’ operating performance. It findsthat, in the Overall sample, PE-backed companies will push up the IPO underpricing rateand reduce ROE. It is mainly because that Chinese market is insufficient, and there areinformation asymmetry effects such as Grandstanding and Adverse selection.However, the PE-backed Sub-sample gets a different conclusion. We found that somefeatures of PE can reduce the IPO underpricing and increase ROE. The paper attribute thisphenomenon to these features can help to decrease information asymmetry, eliminate theGrandstanding and Adverse selection.