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The Role of Private Equity When Portfolio Firms Go Public: Evidence from ChiNext Board

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  • Yao Li
  • Mike Wright
  • Louise Scholes
  • Ziwei Zhang

Abstract

We probe into the question of why entrepreneurial firms choose to obtain private equity finance (PE) shortly before going public on the ChiNext Board (the Chinese alternative stock market for smaller firms, part of the Shenzhen Stock Exchange, SZSE). Using unique hand-collected data we find that, compared with non–PE-backed firms, firms with PE equity stakes introduced shortly before the IPO did not reduce IPO underpricing or decrease the offering cost. However PE investors increased the probability of approval when the firms applied to the China Securities Regulatory Commission (CSRC) for listing. We suggest the stock issuance rules for the ChiNext should be reformed to lower entrepreneurial firms’ financing cost and to encourage PE firms to undertake more value-adding activities.

Suggested Citation

  • Yao Li & Mike Wright & Louise Scholes & Ziwei Zhang, 2019. "The Role of Private Equity When Portfolio Firms Go Public: Evidence from ChiNext Board," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 55(12), pages 2851-2870, September.
    • Handle: RePEc:mes:emfitr:v:55:y:2019:i:12:p:2851-2870
    DOI: 10.1080/1540496X.2018.1536607
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    Cited by:

    1. Aurélie Sannajust & Alexander Groh, 2023. "Pioneering management buy-out and entrepreneurial finance research: Mike Wright’s research legacy," Small Business Economics, Springer, vol. 60(1), pages 1-35, January.

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