Abstract
This study analyzes the impact of venture capital (VC)-backed IPO firms’ patent growth during the period of VC investment on the long-run performance of stock returns, using data on the China A-share market between 2003 and 2013. The baseline results indicate that VC-backed firms that have generated successful patent filings during the investment period of VCs exhibit superior post-IPO performance compared to other VC-backed firms and non-VC-backed firms in the long run. These results continue to hold under several robustness checks. Overall, we provide a clear, crucial mechanism showing that venture capital improves the long-run performance of IPOs by increasing the number of granted patents of portfolio firms; that is, technological innovation is the major contributing factor to the long-run performance of VC-backed IPOs.
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