The Disposition Effect Of Venture Capitalists

Venture capitalists are a very important part of China’s capital market.The main ways for venture capitalists to achieve capital withdrawal are mergers and acquisitions,initial public offerings,management buyout,and bankruptcy liquidation.The data shows that only 24% of venture capitalists will reduce their stocks immediately after the end of the lock-up period.Most of them will continue to hold the stocks.After the stock is locked up,the first time to reduce the holdings is usually 1 year,up to 3 years.The venture capitalists’ expertise is to participate in corporate management,using its expertise to grow with the company,rather than secondary market transactions.The duration of venture capital is generally 3 to 7 years,and the successful IPOs of the invested company are often limited by factors such as the company’s own development level and policy supervision.Such a low exit rate is very confusing.Individual investors often have a “selling profitable stocks and Holding stocks in loss” behavior when disposing of stocks,that is,they tend to sell stocks that have been determined to achieve profitability immediately.Instead,they tend to hold stocks in loss for a long time and expect stocks to return to their buying prices.But in fact,the rise and fall of stocks has nothing to do with the price bought by individual investors.Individual investors are easily affected by the price standards set in their hearts.In fact,this is not rational.Scholars use theories of prospect theory and psychological accounts to explain this behavior.Zhang Chunxia and Liu Chun(2013)studied the transaction data of fund investors in the past seven years,and institutional investors and individual investors in China also showed a disposition effect.Then,whether the Venture capitalists shows a low exit rate when the stock is locked up is also showing a disposition effect.Can those factors alleviate or eliminate this effect,which is very worth exploring.In order to explore this problem,this paper proposes five hypotheses to be tested.Through the survival analysis Weibull regression model to verify the probability of venture capitalists to reduce of their stocks in order to test five hypotheses.Hypothesis H1 to be tested: The venture capitalists has a significant disposition effect in the process of reducing the holding,setting the standard as the stable price in the initial stage of stock locking up;The hypothesis to be tested H2: the venture capitalists has significant disposition effect in the process of reducing the holding,The standard is several times the stock share cost.The hypothesis to be tested H3: The placement of directors of venture capitalists in corporate management will reduce or eliminate the disposition effect.The hypothesis to be tested H4: More the venture capitalists exit experience will reduce the disposition effect.The hypothesis to be tested H5: The larger the investment scale of the venture capitalists,the lower the disposal effect.Through empirical analysis,the paper draws the following conclusions: First,venture capitalists have significant disposition effect for stable price standards after IPOs.Second,venture capitalists have also shown a disposition effect for several times the cost price standard.Third,the venture capitalists has placed a board member on the invested company,which will eliminate its disposition effect on several times the cost price standard.However,it will still have a disposal effect on the stable stock price after IPOs.The venture capitalists that do not have members of the board of directors to the invested companies will have a disposal effect on both types of price standards.Fourth,the more locked up venture exits that venture capitalists have participated in,means the more experience they have withdrawn from investment,will not reducte in their disposition effect.Fifth,venture capitalists of different sizes have different disposition effect.Small institutions will have a disposal effect on the stable price after IPOs standard,while large institutions will have a disposition effect on several times the cost price standard.Medium institutions can avoid disposition effect.Sixth,the venture capitalists have shown significant disposition effect on both types of price standards in this paper,taking into account the overall fluctuations of the market.The robustness of the conclusions of this paper has been verified.Therefore,the author believes that venture capitalists should,while expanding their scale,set as little as possible the income indicators that must be achieved when reducing their stocks.At the same time,members of the board of directors should be actively placed in the invested companys to reduce the asymmetry of information.In the decision-making process,try to avoid being affected by some indicators that are not related to the stock price rise and fall,and make the best choice of reduction.