Equity Investment “Leverage” and Unicorn Enterprise Cultivation

Du Yuan, Kong Baihui

Journal of Shanghai University of Finance and Economics Vol. 25, Issue 04, pp. 63 - 77 (2023)  DOI:10.16538/j.cnki.jsufe.2023.04.005

Summary

Unicorn enterprises refer to non-listed start-up companies that have been established within ten years and have a valuation of more than one billion dollars. Unicorn enterprises have effectively promoted technological progress and economic development in various places. Therefore, the development of unicorn enterprises has become the focus of the Chinese government and practitioners. How to cultivate unicorn enterprises is a realistic problem for local governments in China, and the “unlisted” characteristics of unicorn enterprises and the lack of empirical data are the dilemma faced by academia. This paper takes the listed companies that issued new shares for the first time in Shanghai and Shenzhen stock markets from 2014 to 2020 as the research samples, and uses the “recent financing price” method to select the companies that have met the unicorn standard when they are listed. From the perspective of capital operation in financial management, this study examines the role of cultivating investors to become unicorn enterprises, and further expands the research on the differential effect of controlling and non-controlling equity investments from the perspective of independent variables. From the perspective of dependent variables, the mechanism that affects the overvaluation of unicorn enterprises, namely, the ability to create value from operating activities, is explored, providing inspiration for the cultivation of unicorn enterprises in practice. Through large-scale empirical research, it has been found that equity investment can promote the growth of a company into a unicorn. The mechanism lies in the fact that equity investment can bring heterogeneous resources to the investing enterprise, thereby optimizing the value creation ability of the enterprise’s operating activities, which is manifested in promoting the efficiency of fund allocation in the enterprise’s operating activities, and enhancing the value creation ability of the enterprise in cost control, asset management, and product market competition. Further research finds that controlling equity investment helps to promote the formation of unicorn enterprises, while non-controlling equity investment has an inverted U-shaped relationship with unicorn enterprise cultivation. From the perspective of enterprise valuation mechanism, equity investment promotes the efficiency of fund allocation in investing enterprises’ operating activities, and enhances their cost control ability, asset management ability, and product market competitiveness. The research inspiration is that: Enterprises can strengthen resource integration with invested enterprises through equity investment, and leverage the positive role of equity investment in optimizing the main business of enterprises and promoting enterprise growth and value appreciation; enterprises can balance the proportion and quantity of equity investment to maximize the effectiveness of equity investment in cultivating unicorn enterprises.

Keywords

unicorn enterprises; equity investment; resource; high growth; overvaluation