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4. Empirical Analysis of Exit Performance of Venture Capital through ChiNext

4.1. Correlation Analysis

Since the annual rate of return is obtained by adjusting investment cycle of venture capital institutions, it is used as the explained variable in both correlation analysis and regression analysis of this paper.

According to Table 4, annual rate of return is significantly negatively correlated with the amount of management capital at the 5% level and the correlation coefficient is −0.034, which is inconsistent with the expectation. The reasons are mainly as follows: firstly, samples of this paper are manually collected and screened. Since the selection criteria are subjective to a certain extent, the calculation of variables may differ from the reality. Secondly, the venture capital industry in China is still in its infancy. Even venture capital institutions with a large amount of management capital have a short history and enjoy insufficient management experience related to venture capital investment. At the present stage, projects with large investment scale are less likely to produce errors. In

Table 3. Description of related variables.

Table 4. Correlation coefficients.

Note: *indicates that the variable is significantly correlated at the 0.05 level (two-tailed); **indicates that the variable is significantly correlated at the 0.01 level (two-tailed).

addition, annual rate of return is significantly positively correlated with stock cycle and investment industry at the 5% level, significantly positively correlated with average price-earnings ratio and issuance price at the 1% level and significantly negatively correlated with investment cycle and investment scale at the 5% level, which is consistent with the hypotheses. Annual rate of return shows no correlation with operation period and location of venture capital institutions.

4.2. Regression Analysis

The multiple regression model adopted is as follows:

$Y={\beta }_{0}+{\beta }_{1}{X}_{1}+{\beta }_{2}{X}_{2}+{\beta }_{3}{X}_{3}+{\beta }_{4}{X}_{4}+{\beta }_{5}{X}_{5}+{\beta }_{6}{X}_{6}+{\beta }_{7}{X}_{7}+{\beta }_{8}{X}_{8}+{\beta }_{9}{X}_{9}+{e}_{i}$ (1)

Based on the 148 project samples, paper employs STATA software for White Inspection, thereby examining the heteroscedasticity of data. The inspection results are as follows (Table 5):

It’s revealed in the table that p value is 0.0095, strongly rejecting the homoscedastic hypotheses. In other words, there is heteroscedasticity. In order to eliminate the impact of heteroscedasticity on models, robust standard errors are introduced for OLS regression. The regression results are described below (Table 6):

Based on the regression results, the following conclusions can be drawn:

・ Firstly, there is no significant correlation between annual rate of return and average price-earnings ratio and stock cycle, which is mainly attributed to the following reasons: both average price-earnings ratio and ChiNext composite index are macroscopic indices. In addition, return rate of venture capital projects varies with venture capital enterprises. Therefore, average price-earnings ratio and ChiNext composite index have a limited impact on venture capital performance macroscopically.

Table 5. White inspection results.

Table 6. Regression results.

Note: *indicates that the variable is significantly correlated at the 0.05 level (two-tailed); **indicates that the variable is significantly correlated at the 0.01 level (two-tailed).

・ Secondly, annual rate of return is significantly positively correlated with operation period, which is consistent with the expectation. Operation period of venture capital institutions affects exit performance of venture capital through IPO. The longer the operation period is, the richer market experience venture capital institutions shall have. In the meantime, venture capital institutions with long operation period and good reputation are more preferred by venture enterprises, thereby enjoying greater chances of winning successful venture capital projects.

・ Thirdly, there is no significant correlation between annual rate of return and amount of management capital. On one hand, venture capital institutions in the samples have short operation period and insufficient investment insight and management experience. As a result, blind investment and investment error shall inevitably occur if they perform large-scale investment in a short period of time. On the other hand, due to the limited data sources, registered capital tends to proceed from a legal point of view and emphasize on the security of creditors. The results shall be inaccurate if registered capital is used as a proxy for the amount of the management capital. Therefore, the empirical results show that the amount of management capital has no significant impact on annual rate of return.

・ Fourthly, annual rate of return is significantly negatively correlated with investment cycle, which is consistent with the expectation and attributed to the following reasons: when investing initial capital in projects, venture capital institutions bring institutional innovations and advanced management experience to venture enterprises, thereby optimizing inner structure of venture enterprises, improving their production processes and helping them make and implement strategies decisions. Therefore, short-term investment is characterized by strong marginal value-adding capability and high rate of return. With the extension of investment cycle, however, marginal value-adding capability of venture capital institutions gradually decreases and exit environment of investment projects gradually deteriorates. As a result, the exit possibility is reduced and the rate of return is lowered.

・ Fifthly, there is no significant correlation between annual rate of return and investment scale. When the investment amount is large, risks of venture capital institutions shall overly concentrate and prevent them from decentralizing risks by virtue of multiple projects, thereby exerting a positive impact on investment returns. The reduction of investment scale does not necessarily result in an increase in investment performance.

・ Sixthly, annual rate of return is significantly positively correlated with investment industry. High-tech industry has been the focus of venture capital investment both at home and abroad. It enjoys long-term and excellent growth prospects and provides venture capital institutions with a high rate of return.

・ Seventhly, there is no significant correlation between annual rate of return and location of venture capital institutions. The venture capital industry in China is still in its infancy. Although both Shenzhen and Shanghai are concentrated areas for domestic venture capital investment, neither of them has formed significant regional differences or unique geographical advantages in the operation of venture capital projects. Therefore, the empirical research identifies no correlation between annual rate of return and location of venture capital institutions.

・ Eighthly, annual rate of return is significantly positively correlated with issuance price. Stock issuance price is influenced by market mechanisms, investment value and changes in supply and demand to a great extent. If a project has high stock issuance price, the listed company enjoys stronger operating capability and greater profitability. Therefore, venture capital samples with high issuance price are more likely to obtain high investment returns.

The nine explanatory variables selected explain 30.97% of the entire model. Although the number is significantly larger than that of empirical researches of other scholars in China, the explanatory power is still weak, which is mainly attributed to two reasons. On one hand, explanatory variables are inaccurate when they are used as measurement indexes (use the registered capital as a proxy for the amount of management capital and represent investment experience and management capability with operation period). On the other hand, the venture capital market in China is not mature and the rate of return on investment is influenced by multiple factors. In addition, obvious regularity has not yet been formed. The limited explanatory variables in this paper cannot cover all factors that lead to the difference in venture capital returns.

5. Conclusions and Suggestions

Since the success of venture capital investment relies on the achievement of expected rate of return within the expected time frames, exit mode and exit channel are crucial for the development of the venture capital industry. Based on IPO exit of venture capital through Shenzhen ChiNext, this paper empirically studies IPO exit performance of venture capital in China and draws the following conclusions:

・ Firstly, annual rate of return is significantly positively correlated with operation period, investment industry and issuance price, and significantly negatively correlated with investment cycle. In addition, there is no significant correlation between annual rate of return and average price-earnings ratio, stock cycle, amount of management capital, investment scale and location of venture capital institutions.

・ Secondly, the opening up of ChiNext stock market not only widens the channels for venture capital exit, but also reduces exit costs, improves exit timeliness and expands market capacity, thereby significantly influencing venture capital returns.

Therefore, to promote the steady development of venture capital industry in China, it is necessary to start from the ChiNext. Firstly, it is important to improve laws and regulations related to venture capital exit. Secondly, it is recommended to encourage businesses to introduce venture capital and increase investment. Finally, it is necessary to cultivate high-quality venture capital talents and improve the service quality of venture capital institutions and other intermediaries.

Cite this paper

Ding, Y. (2018). An Empirical Research on IPO Exit Performance of ChiNext. Journal of Financial Risk Management, 7, 99-108. https://doi.org/10.4236/jfrm.2018.71006

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