How Does Human Capital Matter? Evidence from Venture Capital

Journal of Financial and Quantitative Analysis, Forthcoming

60 Pages Posted: 30 Oct 2017 Last revised: 23 Jun 2020

See all articles by Lifeng Gu

Lifeng Gu

The University of Hong Kong; University of Illinois at Urbana-Champaign

Ruidi Huang

Southern Methodist University (SMU) - Finance Department

Yifei Mao

Cornell University - SC Johnson College of Business - Finance Department

Xuan Tian

Tsinghua University - PBC School of Finance

Date Written: June 8, 2020

Abstract

We examine the effect of labor mobility on venture capital (VC) investment. Following the staggered adoption of the inevitable disclosure doctrine that restricts labor mobility, VCs are less likely to invest in affected states. This effect is more pronounced when human capital is more important to startups, when VC investment is more uncertain, and when VCs’ monitoring costs are higher. The reduced innovation productivity of employees is a plausible underlying mechanism. To mitigate this adverse effect, VCs stage finance startups more and syndicate more with other VCs. Our paper sheds new light on the real effects of labor market frictions.

Keywords: Human capital; labor mobility; venture capital; inevitable disclosure doctrine

JEL Classification: G24, G28, O31

Suggested Citation

Gu, Lifeng and Huang, Ruidi and Mao, Yifei and Tian, Xuan, How Does Human Capital Matter? Evidence from Venture Capital (June 8, 2020). Journal of Financial and Quantitative Analysis, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3060837 or http://dx.doi.org/10.2139/ssrn.3060837

University of Illinois at Urbana-Champaign

1206 South Sixth Street
Champaign, IL 61820
United States

Ruidi Huang

Southern Methodist University (SMU) - Finance Department ( email )

United States

Yifei Mao (Contact Author)

Cornell University - SC Johnson College of Business - Finance Department ( email )

Ithaca, NY 14850
United States

Xuan Tian

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengfu Road
Haidian District
Beijing 100083
China
+86-10-62794103 (Phone)

HOME PAGE: http://xuantian.info/

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