Examining the Performance of Venture-Backed Companies in the Hong Kong IPO Market

Abstract

This empirical study investigates whether venture capitalists (VCs) can certify their portfolio companies as the most promising ones and whether they can alleviate the IPO underpricing issue in Hong Kong market. Although a number of studies show that the VCs can ease underpricing issues and can help their ventures generate better post-IPO operational performance in the US market, we find the effects of VC participations in Hong Kong are different. We find that the underpricing issues of VC-backed IPOs are more severe than non-VC-backed IPOs. We make use of key financial ratios to compare their post-IPO operating performances and find that VC-backed post-IPO performance is poorer than non-VC-backed performance. The result reflects that VCs cannot certify their portfolio companies as those with better prospects and they cannot improve the IPO underpricing issue in Hong Kong market. The significant findings are different from previous studies to some extent. In short, it can add value to the previous articles and tend to solve their drawbacks. It can also contribute to the literature and add insight for future studies on VC development in other Asian markets.

TOPICS: Private equity, statistical methods, emerging, performance measurement