The Effects of the Alliances of VC and Underwriters on the IPO Underpricing Rates of ChiNext Companies

The venture capital (VC)has important relationship with governments,banks,underwriters and the interbank,which constitutes the important social capital for the VC and makes the VC play the role of value increment function.And the relationship between the VC and the underwriters is especially worthy of being focused on.This paper counts the number of cooperation between VC behind IPO companies and the underwriters employed by the ChiNext companies,and defines alliance relationship with equal or more than two times of cooperation between VC and the underwriters.Then it decomposes the first-day IPO underpricing rate into the intrinsic underpricing rate and the secondary market reaction rate,and studies the existence of the effect of alliance relationship between VC and the underwriters on the efficiency of IPO pricing in companies whose shares the VC holds.It arrives at the results as follows: firstly,compared with companies whose shares the VC holds but which do not have several times of cooperation with underwriters,and ones whose shares the VC does not hold,the issue prices of the companies with VC-underwriter alliance-backed relationship are closer to the intrinsic value of the companies,showing the lowest intrinsic underpricing rates; secondly,such firms have higher closed prices on the secondary market,showing the highest secondary market reaction rates.The evidence shows the VC has the certification effect and market power,and these two effects may come from the long-term and stable alliance relationship between VC and the underwriters.The research conclusions are of reference significance to all the participants on the ChiNext board market.