China & World Economy / 90–106, Vol. 24, No. 2, 2016

Does Foreign Venture Capital Provide More Value-added Services
to Initial Public Offering Companies in China?

Yin He, Bin Li, Yunhua Tian, Lijun Wang*

Abstract

This paper uses all 1404 initial public offerings (IPO) undertaken between 2002 and 2012 in China to analyze whether venture capital (VC) investment, especially foreign VC investment, brings more or less value-added services to the invested companies during the 3 years following the IPO. The results show that venture capitalists choose to invest in companies with higher value potential, and, in turn, the value of the companies increases after the IPO is undertaken; foreign VC adds more value to companies than domestic venture capital. However, the profitability of VC-backed and non VC-backed companies after IPO does not differ significantly. Nevertheless, it is shown that VC plays an active role in China.

Key words: China, foreign venture capital, initial public offering, profitability, value
JEL codes: F21, G24, G32