The effects of venture capital, R&D and technology on the IPO underpricing: Evidence from China

Abstract

This paper is a preliminary attempt to investigate the effects of technology and R&D expenditure, and the moderating effect of venture capital through interaction of technology and R&D on underpricing of IPO in China A-share market. Using the 997 IPOs sample from 2013 to 2018 in China A-share market, I apply a cross-product residual centering approach to explore the relationships among factors. I find that venture-backing IPOs experience less underpricing; technology requirement increases IPO underpricing; R&D expenditure helps to reduce tech-IPOs underpricing. The striking observation to emerge from the data is that IPO underpricing caused by technology requirement can be moderated by the participation of venture capital. The finding highlights that strengthening the supervision role of venture capital in the invested company and improving the R&D information disclosure level in technology company can effectively reduce the degree of IPO underpricing.