Venture Capital Certification and IPO Underpricing

Using data from companies listed on the Growth Enterprise Market (GEM) from 2009 to 2010, this article investigates the effect of venture capital firms on initial public offering (IPO) underpricing. The empirical results suggest that venture capital firms have a limited and weak role in certification due to the special environment of such firms in their early stages. China's venture capital firms conform to the general trends of the Western capital market but, at the same time, have some characteristics typical of newly emerging markets. As in the early stages of Western venture capitalism, China's venture capital firms are still in the process of maturing as a result of their grandstanding and profit motivations and do not have a major role in certifying start-ups. Nonetheless, the place of private venture capital firms in China's newly emerging capital markets has grown significantly. Their investment management models and strategies are consistent with modern market laws and are playing an increasingly active role in certification.