The Performance of Governmental Venture Capital Firms: A Life Cycle Perspective and Evidence from China

43 Pages Posted: 22 Aug 2016 Last revised: 7 Dec 2016

See all articles by Yuejia Zhang

Yuejia Zhang

University of Auckland; University of Auckland - Department of Accounting and Finance

David G. Mayes

University of Auckland (Deceased)

Date Written: August 14, 2016

Abstract

This paper investigates the difference between governmental venture capital firms (GVCs) and private venture capital firms (PVCs) from the perspective of a VC life cycle. Compared to PVC, GVCs put in less effort over the whole cycle due to the lack of a link between current performance and future fundraising, and a less efficient compensation mechanism for those involved. Using data on VC investments in the Chinese market between 1991 and 2010, the empirical results show that portfolio companies backed by GVCs underperform those backed by PVCs in going public. The results are supported by a series of robustness checks and selection bias tests. When taking into consideration unobservable factors which may affect the possibility of being backed by GVCs and achieving an IPO, portfolio companies backed by GVCs have a 31-percentage-point lower possibility of getting listed on the stock market compared with those backed by PVCs.

Keywords: Venture Capital Firms, Life Cycle, Performance, Government, China

JEL Classification: G24

Suggested Citation

Zhang, Yuejia and Mayes, David G., The Performance of Governmental Venture Capital Firms: A Life Cycle Perspective and Evidence from China (August 14, 2016). 29th Australasian Finance and Banking Conference 2016. Available at SSRN: https://ssrn.com/abstract=2823242 or http://dx.doi.org/10.2139/ssrn.2823242

Yuejia Zhang (Contact Author)

University of Auckland ( email )

Private Bag 92019
Auckland Mail Centre
Auckland, 1142
New Zealand

University of Auckland - Department of Accounting and Finance ( email )

Private Bag 92019
Auckland 1001
New Zealand

David G. Mayes

University of Auckland (Deceased)

Private Bag 92019
Auckland Mail Centre
Auckland, 1142
New Zealand

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