IPO “Hot Issue” and Venture Capital Investment Cycles： Causes and Consequences

Abstract

Abstract: High correlation between venture capital investment cycles and the shifts of “hot” and “clod” IPO markets has received much attention. Taking the quasi-natural experiment provided by Chinese unique institution as research scenario, this study examines the causes and consequences of the association between venture capital and stock market. We find that there is a significantly positive association between IPO “hot issue” and venture capital investment cycles. The mechanism that consistently explains the correlation is VCs' perception about liquidity risk of IPO exit, rather than VCs' response to attractive investment opportunities signal provided by public market. In terms of consequences, we do not find evidence that the venture capital investments made during “hot” IPO market foster more early-stage firms or inspire innovation.

Key words: IPO “hot issue”, venture capital, investment cycles, entrepreneurship, innovation

Chen Chuang, Xiao Min, Cao Yuxiu, Wen Hai. IPO “Hot Issue” and Venture Capital Investment Cycles： Causes and Consequences[J]. Management Review, 2020, 32(11): 3-18.

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