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Exit uncertainty and investment strategies of Venture capitalists: evidence from an IPO suspension in China

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  • Shuxiao Sun
  • Lanying Peng
  • Zehao Wang
  • Wentao Li
  • Zhen Wang

Abstract

Our study examines whether Venture capitalists (VCs) prefer independent or syndicated investments when faced with exit uncertainty. By exploiting an initial public offering (IPO) suspension in China, our analysis reveals that VCs are more likely to independently invest in start-ups during such a suspension, which is driven by the screening and monitoring roles of VCs. Specifically, we find a greater likelihood of VC exits and a higher return on investment for VCs investing in start-ups during the suspension. Further, start-ups that obtain financing from VCs during the suspension are strictly monitored by VCs and reduce the extent of upward earnings management in the pre-IPO year.

Suggested Citation

  • Shuxiao Sun & Lanying Peng & Zehao Wang & Wentao Li & Zhen Wang, 2024. "Exit uncertainty and investment strategies of Venture capitalists: evidence from an IPO suspension in China," Applied Economics Letters, Taylor & Francis Journals, vol. 31(19), pages 1931-1938, November.
    • Handle: RePEc:taf:apeclt:v:31:y:2024:i:19:p:1931-1938
    DOI: 10.1080/13504851.2023.2208828
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