| Both public markets and venture capital markets are volatile.Existing research about mature capital markets found that venture capital investment cycles are related to IPO activities and valuations in public equity markets.China’s IPO is subject to more government intervention comprared to mature markets.So,in China,"What is the correlation between the IPO "Hot Issue" and the venture capital cycles?Why IPO"Hot Issue" impact venture capital investment cycles?Venture capital is an incubator for entrepreneurial activity,which is an important driver of capital market impact on entrepreneurship and innovation.Is venture capital investment during the period of IPO "Hot Issue" more conducive to support start-up and business innovation?Based on the related literatures,this paper chooses the data of the public markets and the venture capital market in China from 2004 to 2014,and firstly examines the relationship between IPO "Hot Issue" and venture capital investment fluctuation.Then,this paper uses the unique institutional background of China’s public markets,and separates the assumptions in the previous literature—investment opportunities signaled by public market shifts and the liquidity risk in IPO exit markets.Lastly,referring to the theory of liquidity risk in IPO exit markets and the findings that the same investors invest in more risky,innovative startups in hot markets,this paper considers the impact of the cycle on new companies and innovation.The empirical results show that the venture capital cycle is related to the IPO "Hot Issue".Much of the volatility in the venture capital industry is associated with the exit market conditions.From the economic consequences,the venture capital investment in hot times is no more conducive to start-ups and innovation.The possible contributions are as follows.Firstly,provide empirical evidence from the emerging market for the study of the correlation between public markets and venture capital investment.Secondly,separate the assumptions in the previous literature.Lastly,check whether venture capital investment during the period of IPO"Hot Issue" is more conducive to support new companies and innovation. |
