VENTURE CAPITAL CERTIFICATION AND FINANCIAL STABILITY: EVIDENCE FROM CHINESE IPOS

Abstract

This study examines how venture capital (VC) certification reduces financial distress and lowers the cost of capital for Chinese IPOs. Analyzing 1,683 non-financial firms that went public from 2006 to 2016, the findings show that VC-backed firms face significantly less financial distress and benefit from better financing terms than non-VC-backed firms. Using propensity score matching to address endogeneity, the study confirms that VCs select firms with strong prospects and reduced financial risk. Notably, reputable and independent private VCs have a stronger impact on lowering financial distress and financing costs. Overall, the results highlight the critical certification role of VC backing in enhancing financial stability and capital efficiency for IPO firms.