Exit disruption and matching in venture capital markets: Evidence based on IPO suspensions in China

Abstract

This study investigates the impact of IPO suspensions on the matching relationship between venture capital firms (VCs) and startups in China's venture capital market. We find that IPO suspensions significantly improve the degree of matching between VCs and startups. This effect is particularly pronounced for lower-quality VCs and startups with limited growth potential. Moreover, the positive impact of IPO suspensions on matching is stronger when VCs are domestic or state-backed, when VCs and startups are located in the same region, or when startups are in the middle or late stages of development. Our analysis reveals that IPO suspensions reduce VCs' risk-taking behavior and facilitate information exchange in the venture capital market, thereby enhancing the matching process. These findings provide novel evidence on the role of government policy interventions, such as IPO suspensions, in shaping the investment and financing activities of VCs and startups in China's venture capital market.