Financial Market Sustainability in a Dual-Track System: Venture Capital and Startups’ Speed of Passing

The relationship between venture capital and startup growth becomes especially important in financial systems where firms can go public through different regulatory routes. The 2023 study Financial Market Sustainability in a Dual-Track System: Venture Capital and Startups’ Speed of Passing examines this issue in the context of China’s dual-track IPO environment, where a registration system and an approval system coexist. The paper uses listed companies from the National Equities Exchange and Quotations (NEEQ) as its sample and focuses on how venture capital affects a startup’s IPO process, especially its speed of passing and listing. (MDPI)

This topic matters because IPO access is more than a financing milestone. It is a test of how efficiently a market allocates resources and how well it transforms innovation into sustained value. In that sense, the study speaks directly to financial market sustainability, since smoother and more transparent pathways to public listing can improve the functioning of the capital market while helping high-quality startups reach investors faster.

The paper’s title may sound highly technical, but the core issue is straightforward: does venture capital help startups move through the listing process more effectively, and does the answer change depending on the market system in place? The study shows that the answer is yes, and that the mechanism is not just money. Governance, disclosure, certification, and timing all matter.

Purpose

The purpose of the study is to evaluate venture capital’s role in resource allocation efficiency under changing marketization conditions. More specifically, the authors compare how venture capital affects startup IPO processes under a registration system and an approval system. They aim to identify whether VC-backed firms pass review faster, list sooner, and perform better after listing, and whether those effects are linked to venture capital’s certification, supervision, and timing roles.

Another purpose of the study is to contribute to the debate over market reform in emerging economies. The authors argue that the coexistence of registration and approval systems provides a useful natural setting for examining how institutional design shapes financial market sustainability. In their view, this special reform period makes it possible to compare the advantages and disadvantages of different IPO issuance systems in a way that enriches research on capital market reform.

The study also aims to clarify what venture capital actually does in the IPO process. The findings suggest that VC is not only a source of capital. It also helps reduce information asymmetry, improves disclosure discipline, strengthens governance through board participation, and supports better timing decisions. Those functions make VC a strategic actor in the development of sustainable financial markets, rather than merely a passive investor.

Findings

The strongest finding is that after the trial registration system, VC-backed startups had a higher probability of success and faster passing and listing. The paper states that VC-owned startup enterprises could pass and list more quickly under the registration system, supporting the idea that venture capital provides a certification effect.

The second major finding is that venture capital’s effect is stronger under the registration system than under the approval system. The paper reports that, in the registration system subsample, VC support shortened the time required to pass the meeting and reduced the listing timeline, while in the approval-system subsample, VC holdings did not significantly shorten the speed of passing or listing. This suggests that institutional context determines whether venture capital can fully express its value.

A third finding is that risk disclosure helps explain the relationship between VC support and IPO speed. The authors report that VC-backed startups disclosed more risk information in their prospectuses, and that this higher level of risk disclosure helped shorten the time needed to pass the IPO review process. In other words, better disclosure was one of the channels through which VC support improved IPO efficiency.

The study also finds that board participation matters. When venture capitalists sent directors and supervisors to startup enterprises, the result was a significant negative relationship with speed of passing, meaning the process became faster. This governance effect was significant under the registration system, but not under the approval system. The implication is that VC influence becomes more effective when the market system rewards transparency and material compliance more directly.

Another important finding concerns timing. The paper reports that VC-backed startups were more likely to list during the IPO hot season, and that venture capital had a stronger timing ability in that period. This indicates that venture capitalists are not only helping firms enter the market faster but are also helping them choose more favorable windows for issuance.

The authors further report that VC-backed startups performed better after listing, with improved short-term indicators such as underpricing rate, stock price volatility, and excess return rate. This suggests that the benefits of venture capital extend beyond the listing event itself and may continue to support market quality after the firm becomes public.

Discussion

The study is important because it shows that financial market sustainability depends not only on regulation but also on the quality of intermediaries. Venture capital can function as a bridge between startups and public markets. When institutions reward transparency and reduce administrative interference, that bridge becomes stronger. Under those conditions, VC-backed startups are more likely to move through the IPO process efficiently and responsibly.

This makes the dual-track system particularly revealing. A market can have both registration and approval pathways, but the same venture capital mechanisms do not produce identical results in both settings. The paper suggests that the registration system gives regulators and investors a clearer view of venture capital’s certification and governance value, while the approval system weakens those effects through heavier administrative intervention and more complicated procedures. That difference is central to understanding why institutional reform matters for sustainable market development. The discussion also highlights the deeper logic of venture capital. VC is often described as money plus mentorship, but this study shows something more specific. VC improves the IPO process through certification, supervision, risk disclosure, and timing. Those functions help high-quality firms enter the market sooner and with better preparation. This matters for sustainability because a market that channels capital toward stronger firms more efficiently is more likely to remain healthy over time. At the same time, the paper implies that venture capital is not equally effective in every institutional context. In a more rigid approval-based system, the benefits of VC governance and disclosure support may be muted. That means sustainable financial market design cannot rely on venture capital alone. It also requires regulatory conditions that allow the informational and supervisory advantages of VC to matter.

There is also a practical lesson for startups. Founders should not think of venture capital only as a fundraising source. VC can alter how a startup is governed, how much it discloses, how it is perceived by regulators, and when it chooses to enter the market. Those changes can shorten the path to listing and improve post-listing performance, but only when the startup is willing to accept a more disciplined relationship with investors.

Theoretical Implications

The paper contributes to theory in several ways. First, it expands research on the gradual reform of capital markets in emerging economies by showing how a dual-track system creates a useful setting for comparing IPO mechanisms. The authors explicitly note that such coexistence of registration and approval systems is uncommon and therefore valuable for research on market reform.

Second, the study supports the classic venture capital certification hypothesis. In the sample, VC-backed firms were more likely to pass review and list faster under the registration system, suggesting that VC ownership sends a quality signal to regulators and market participants. The article also links its findings to the value-added view of venture capital, which emphasizes governance and monitoring rather than capital alone.

Third, the paper contributes to governance theory by showing that board participation by venture capitalists has measurable effects on IPO outcomes. This suggests that investor involvement in management is not just symbolic. It can alter disclosure quality and regulatory efficiency, especially in systems that place greater weight on compliance and transparency.

Fourth, the findings strengthen the argument that financial sustainability is institutional as well as financial. Efficient resource allocation does not happen automatically. It depends on how markets are structured, how information is disclosed, and how intermediaries interact with firms. The paper shows that market sustainability improves when venture capital operates in an environment where its signals and oversight can be properly recognized.

Practical Implications

For policymakers, the study suggests that strengthening disclosure rules and supporting more transparent market structures can help VC-backed startups move more efficiently through the IPO pipeline. The authors specifically recommend improving information disclosure and strengthening R&D disclosure, including mandatory disclosure of items such as R&D expenditures, patent counts, and income from new products. Those recommendations point toward a market that is more open, more informative, and more sustainable.

For venture capitalists, the paper suggests that value creation goes beyond capital provision. The most effective VCs appear to help startups prepare better disclosures, improve governance, and choose optimal listing windows. Those are all mechanisms that can increase the probability of a successful and efficient public offering.

For startup founders, the lesson is that readiness for public markets matters as much as ambition. A startup that receives VC backing may gain credibility, but it also inherits higher expectations for transparency and governance. Those expectations can become strengths when managed well, because they help the company move through the listing process faster and more smoothly.

Conclusion

Financial Market Sustainability in a Dual-Track System: Venture Capital and Startups’ Speed of Passing shows that venture capital can play a meaningful role in helping startups reach the public market more efficiently, but the effect depends strongly on institutional design. The study finds that VC-backed startups pass and list faster after the trial registration system, that risk disclosure and board participation help explain this improvement, and that the benefits are much weaker under the approval system.

The broader message is that sustainable financial markets are built through the interaction of capital, governance, disclosure, and regulation. Venture capital can add real value by certifying quality, monitoring firms, and improving timing, but it needs a market structure that allows those functions to work. When that happens, startups are better positioned to pass through the IPO process, perform well after listing, and contribute to a healthier capital market.

Keywords: 

Venture capital and startups speed of passing, dual-track IPO system sustainability, financial market sustainability in emerging markets, VC certification effect on IPOs, VC governance and risk disclosure, startup listing speed under registration system, approval system versus registration system IPOs, venture capital and market reform, sustainable financial market resource allocation, startup IPO process and venture capital support