Venture Capitalists' Value-Enhancing Activities Under Weak Protection of Law
46 Pages Posted: 21 Jan 2016
Date Written: January 19, 2016
Using two sets of hand-collected survey data, we studied the value-adding activities of venture capitalists (VCs) operating in the weak legal environment of China. VCs exert value-enhancing efforts in addition to monitoring through trust considerations. We identified the effects of three types of trusts, strategic reputation-based (C-trust), knowledge-based (K-trust), and identification-based (I-trust), on a company’s performance while investing venture capital in China. We find that the C-trust acts only through increased use of complementary resources to improve a firm’s performance. K-trust and I-trust can also stimulate in two other ways by reducing transaction costs and improving team-spirit.
Keywords: Venture Capital, Trust, Firm Performance
JEL Classification: G24, K22, L14, M13, O16
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