The impact of venture capital on corporate performance

Abstract

Using the data of firms listed on the Growth Enterprises Market Board (GEM) in China from 2009 to 2014, this paper investigates the influence of venture capital (VC) on corporate performance from three time dimensions—pre-IPO, post-IPO, and from pre-IPO to post-IPO. First, our findings indicate that China's GEM market also has “IPO Effect”, which is consistent with foreign capital markets that there is a general decline trend of corporate performance after IPO. Furthermore, before IPO, VC-backed enterprises have better corporate performance than those Non-VC-backed enterprises, but this is mainly due to the high earnings management level manipulated by VC. Finally, after IPO, corporate performance of VC backed enterprises is lower than that of Non-VC-backed enterprises. The results show that VC's participation will increase the decline level of performance from pre-IPO to post-IPO. These research results are of great importance to the guidance of Chinese venture capital towards a healthy direction.