Does improved IPO access stimulate venture capital? Evidence from China's registration-based reform

We examine the spillover effects of public market listing reforms on private firm financing, using China's registration-based IPO reform as a quasi-natural experiment. We find that improved IPO access significantly catalyzes venture capital inflows into private firms, increasing both financing magnitude and pace. Evidence shows that the reform triggers more and faster first-round financings, signaling expanded entrepreneurial demand. Concurrently, the incumbent firms receive larger investments post-reform conditional on firm fundamentals, providing suggestive evidence consistent with a supply-side response. Moreover, while the reform pushes up pre-IPO valuations, further analyses rule out a purely mechanical valuation-driven explanation. Finally, we find that this increased financing translates into substantive innovation. Overall, our results suggest that improving the IPO environment effectively reduces financing frictions, facilitating the flow of capital toward high-quality private firms.