VC Participation and Failure of Startups: Evidence from P2p Lending Platforms in China

17 Pages Posted: 1 Oct 2020

See all articles by Xiaoyang Li

Xiaoyang Li

Jinan University

Iftekhar Hasan

Fordham University ; Bank of Finland; University of Sydney

Date Written: August 16, 2020

Abstract

We investigate how VC participation affects the failure of startups. Using a unique data set of the survival of peer-to-peer (P2P) platforms in China, we identify two types of failures, bankruptcy, and run off with investors’ money. The Competing Risk Model results show that while VC participation reduces bankruptcy hazard, it has little impact on the runoff failures. The findings are robust to the use of matched sub-samples that disentangle the influence of pre-investment screening by VC. Further analysis of exit routes reveals that conditional on failure, VC participation is associated with a higher chance of running for the exit.

Keywords: Venture Capital, Startup; P2P Platform, Corporate Failure

JEL Classification: G21, G23, G24, G33

Suggested Citation

Li, Xiaoyang and Hasan, Iftekhar, VC Participation and Failure of Startups: Evidence from P2p Lending Platforms in China (August 16, 2020). Finance Research Letters, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3675001 or http://dx.doi.org/10.2139/ssrn.3675001

Xiaoyang Li (Contact Author)

Jinan University ( email )

Huang Pu Da Dao Xi 601, Tian He District
Guangzhou, Guangdong 510632
China

Iftekhar Hasan

Fordham University ( email )

45 COLUMBUS AVENUE
GBA-5TH FLOOR
NEW YORK, NY 10023
United States

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

University of Sydney ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

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