A venture capital firm runs its capital business through private shareholding. It is a high risk and high return business that achieves long term capital gain through developing and counseling other companies to start or to expand their businesses. Generally speaking, venture capital firms usually conduct the following critical tasks: investing in new and rapidly growing technology companies through shareholding, participating in the board meetings, getting involved in management decision making and providing add-on values. For example, to assist a new company in developing new products, to provide technical support and product marketing, to provide management consulting services and professional personnel staffing and to assist internal management and strategic planning, etc. Therefore the involvement of a venture capital firm in running its business includes not only financial capitals but also various kinds of support with add-on values. The purpose of this paper is to investigate whether the involvement of a venture capital firm influences the long term management performance and share price behavior of a newly traded company, and to understand whether it brings positive impact to the company¡¦s financial performance and finally to identify if it results in any change in the long term return of share price. The companies in the research sample are selected in the period during 87 and 92. This period is further classified into two sub periods. The first sub period is between 87 and 89. This period is considered a peak period of venture capital business. The second sub period is between 90 and 92. This period is considered the downturn of venture capital business. This paper selects from populations of newly traded companies in both periods samples with involvement of venture capital to compare with samples without involvement of venture capital. This study then analyzes financial performance with and without involvement of venture capital, and the difference in financial performance and share price return during the two periods. In terms of number of years between the start of a company and the date it starts to be traded in the share market, the study result shows that it is shorter for companies with involvement of venture capital in either the 87-89 venture capital peak period or in the 90-92 venture capital downturn. This implies that the professional knowledge and experience help invested companies to shorten the time in preparing themselves to be traded in the share market. In terms of profitability, this study finds that the influence of venture capital on profitability of invested company is insignificant. In terms of growth rate, companies in peak period and with venture capital involvement perform better. However in the downturn, companies with venture capital involvement actually perform worse than
those without venture capital involvement except in the first season after being traded. The result shows that venture capital firms invest mostly in companies with quick return during downturn and only focuses on short term benefit. This leads to fast initial growth but rapid decline afterwards. Furthermore, asset flow and liability ratio are both better in companies with venture capital involvement than those without venture capital involvement. This reflects the value of financial support to newly traded companies provided by venture capital firms. However the effect declines as time goes by and the declining rate is faster in the downturn than that in the peak period. In terms of management capabilities, companies with venture capital involvement do not perform better than those without venture capital involvement. This fact is more obvious in the downturn period. Therefore venture capital firms do not seem to improve management capabilities of the invested companies. In terms of long term share price return, this study finds no significant difference between companies with venture capital involvement and those without venture capital involvement in returns after 30-180 days adjustment. After 360 days, risk adjusted Sharp index of companies with venture capital involvement is significantly better than those without venture capital involvement. The finding is very different in the 90-92 downturn period. The share price returns of companies with venture capital involvement are significantly lower than those without venture capital involvement. Although the risk adjusted index does not reach statistical significance, the difference remains big. Such result is probably due to the fact that venture capital firms want to avoid risk during downturn period by making a quick profit and then leaving the market. Venture capital firms sell their shares shortly after the invested companies are listed in the market and therefore make the share prices to be downwardly adjusted in the short term. Also the share price returns of companies with venture capital involvement at 30th day after they are traded in the market are significantly lower than those of companies with venture capital involvement.
| Identifer | oai:union.ndltd.org:NSYSU/oai:NSYSU:etd-0812105-161004 |
| Date | 12 August 2005 |
| Creators | Huang, Te-Chiang |
| Contributors | James C. T. Lee, David Shyu, Feng-yu Ni |
| Publisher | NSYSU |
| Source Sets | NSYSU Electronic Thesis and Dissertation Archive |
| Language | Cholon |
| Detected Language | English |
| Type | text |
| Format | application/pdf |
| Source | http://etd.lib.nsysu.edu.tw/ETD-db/ETD-search/view_etd?URN=etd-0812105-161004 |
| Rights | not_available, Copyright information available at source archive |
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