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
Date Written: August 14, 2016
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
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