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The role of angel investment for technology-based SMEs: Evidence from China

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  • Zhou, Lu Jolly
  • Zhang, Xinyu
  • Sha, Yezhou

Abstract

This paper comprises an empirical study on the role of angel investment in the Chinese IPO market. Using a novel dataset on 743 deals of 404 angel-backed firms from 2002 to 2013 and tracing the firms' growth history to 2017, we found that angel investment is institutionalized in the Chinese market. Based on this current situation, we develop an innovative angel investment resource factor and show that an abundance of angel resources can reduce short-term information asymmetry and generate a positive but lagging effect on SMEs' long-term performance. Furthermore, we find that these angel-backed firms have a lower stock price crash risk after IPOs, which also explains the time-lag effect of angel investment on their market performance in the early stage of IPOs. Our results are resistant to several endogeneity tests and provide insights into the multifaceted contributions to the aftermarket performance and survival of technology-based SMEs and the sustainable development of angel institutions in emerging markets.

Suggested Citation

  • Zhou, Lu Jolly & Zhang, Xinyu & Sha, Yezhou, 2021. "The role of angel investment for technology-based SMEs: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 67(C).
    • Handle: RePEc:eee:pacfin:v:67:y:2021:i:c:s0927538x21000470
    DOI: 10.1016/j.pacfin.2021.101540
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    References listed on IDEAS

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    Cited by:

    1. Liu, Yang & Zhang, Qianqian & Li, Jinda, 2023. "The informal hierarchy of board and stock price crash risk," Finance Research Letters, Elsevier, vol. 58(PC).
    2. Chen, Xue & Ma, Le, 2023. "Lead investors' insider ownership and crowd investors' agency concerns in investor-led equity crowdfunding," Pacific-Basin Finance Journal, Elsevier, vol. 78(C).
    3. Ziqin Yu & Xiang Xiao, 2022. "Shadow banking contraction and innovation efficiency of tech-based SMEs-based on the implementation of China’s New Asset Management Regulation," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 12(2), pages 251-275, June.
    4. Maran, Raluca, 2022. "Improving MSMEs’ access to start-up financing in ASEAN countries," MPRA Paper 114501, University Library of Munich, Germany.
    5. Shi, Lisi & Ho, Kung-Cheng & Liu, Ming-Yu, 2023. "Does societal trust make managers more trustworthy?," International Review of Financial Analysis, Elsevier, vol. 86(C).

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    More about this item

    Keywords

    Angel investment; SMEs; IPO; Stock price crash risk; Chinese market;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

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