Stock Issue System and Valuation of High-tech Start-ups:Evidence from a Natural Experiment
Venture capital investors can provide start-up capital for technology-based startups and accompany their growth.Reasonable valuation and pricing are prerequisites for venture capital investors and start-ups to complete investment and financing transactions.The reform of the stock issuance system can change the valuation and pricing of start-up technology enterprises by influencing the ex-pected returns of venture capital investors.Identifying the relation between issue system of new shares and the valuation of start-ups in technology-based enterprises has empirical challenges.Firstly,many countries gradually change the pace of new stock issuance,but there are very few countries that change the system of new stock issuance.Secondly,the new stock issuance system is usually aimed at all enterprises,making it difficult to find the experimental and control groups required for causal identification.The reform of the registration system has provided empirical situ-ation for this study through quasi natural experiments.During the pilot period of the registration system on the Science and Technolo-gy Innovation Board in China,the registration system was applied to the six major science and technology innovation industries,including the new generation of information technology,high-end equipment,and new materials,while the approval system was ap-plied to other non-science and technology innovation enterprises.This is beneficial for this article to use the double difference method for policy evaluation.According to the enterprise name,this paper matches Zero2IPO database,China National Intellectual Property Administration data and Tianyancha website to obtain relatively complete data of start-ups.This paper takes the first round of fi-nancing enterprises from Q1 2016 to Q1 2020 as the sample,science and technology innovation enterprises are the experimental group,and non-science and technology innovation enterprises are the con-trol group.It was found that after adopting the registration system and proxy approval system,venture capital investors increased the valuation of start-up technology enterprises in the first round of financing.The mechanism by which the registration system reform enhances the valuation of start-up technology-based enterprises is to increase the expected returns of venture capital investors.Spe-cifically,innovation capability has a positive impact on the proba-bility of a company going public and venture capital returns after the implementation of the registration system,and start-ups with stronger innovation capability have higher valuations.Local ven-ture capital investors has a better understanding of the requirements of the registration system for innovation capability and searches for high-quality innovative enterprises.Therefore,local venture capital investors are more willing to increase the valuation of start-ups in technology.Strict intellectual property protection enhances the confidence of venture capital investors in innovative enterprises going public,and the positive impact of registration system reform on valuation is more evident in regions with better intellectual property protection.Moreover,the reform of the registration system can transmit and maintain the effect of improving the valuation of start-ups in technology-based enterprises until their initial public offering,ultimately promoting the successful exit of venture capital investors.The results of this article remain unchanged after multiple robust-ness tests.Firstly,this article excludes the potential impact of new enterprise creation.Another alternative explanation for the results of this article is that the registration system incentivizes entrepre-neurs to start new businesses around the science and technology innovation industry,thereby improving the quality of the enterprise and causing an increase in enterprise valuation.Secondly,this ar-ticle excludes the possible impact of venture capital arbitrage.An-other possible reason for the increase in corporate valuation caused by the registration system reform is that venture capital utilizes the convenient opportunity of corporate listing for institutional arbi-trage.Thirdly,this article also excludes the issue of sample selection bias.The sample in this article is venture capital backed enterprises,and sample bias may be caused by the selectivity of venture capital investors.To overcome the problem of sample selection,the sample changed to enterprises that conduct the first round of financing for angel investors or strategic investors for retesting.After a series of testing,the above potential concerns do not interfere with the con-clusion of this article.This article has corresponding theoretical contributions.Firstly,this paper expands the economic consequences and impact scope of the stock issuance system.This article focuses for the first time on the impact of stock issuance system on the valuation of start-ups in technology-based enterprises,which belongs to the testing of spillover effects of stock issuance system and expands the economic consequences and scope of impact of stock issuance system reform.Secondly,this paper enriches the research on the influencing factors of venture capital valuation.This article explains that the new stock issuance system affects the expected returns of venture capital and changes the valuation of venture capital,promoting research on the impact of macroeconomic factors on the valuation of venture capi-tal.Thirdly,this paper provides evidence of the necessity for China to carry out registration system reform.This article finds that the registration system can reduce the equity financing costs of start-ups and guide venture capital to support innovative and entrepre-neurial enterprises.The results of this article have policy implications.Firstly,the reg-istration system reform not only alleviates the financing difficulties and high financing costs of start-ups,but also alleviates the diffi-culties and slow exit of venture capital investors.Secondly,under the background of the registration system,science and technology innovation enterprises should face the main battlefield of the na-tional economy and the forefront of international technology in the early stages of development,and lay a solid foundation for direct financing in the capital market as soon as possible in key scientific and technological fields.Finally,the registration system reform in-creases the valuation and pricing of venture capital for enterprises,thereby increasing investment costs.Venture capital investors can supplement investment managers with technological backgrounds in advance,enhance the professional level of technology investment,and conduct in-depth layout around the hard technology track.At the same time,the registration system reform increases the valua-tion and pricing of venture capital for enterprises,thereby increas-ing investment costs.Based on this,venture capital should optimize its valuation system,enhance its value discovery and bargaining power.
Initial Public OfferingsRegistration SystemVenture CapitalInnovation CapacityValuation
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