Venture capital investment and institutional factors: Evidence from China

59 Pages Posted: 15 Jun 2021 Last revised: 22 Mar 2022

See all articles by Tianyi Song

Tianyi Song

Kobe University - Graduate School of Business Administration

Kenji Kutsuna

Kobe University - Graduate School of Business Administration

Date Written: February 18, 2022

Abstract

This paper examines how venture capital (VC) investment and institutional factors affect the performance of VC-backed companies in China. We conduct empirical analysis using a sample of companies listed on China’s Growth Enterprise Market (GEM) from 2009 to 2015. Our results show that, compared to non-VC-backed companies, VC-backed companies slightly underperform in terms of profitability but have considerably higher market value. We find that while VC investment does not help companies mitigate the negative impact of institutional factors on profitability, it does convey beneficial effects that help companies moderate the negative impact of institutional factors on market value. We provide further evidence through cross-sectional tests that the impact of VC investment and institutional factors is more pronounced for non-state-owned companies and companies with poor corporate governance.

Keywords: Venture capital; Institutional factors; Investment strategy; Company performance; China

JEL Classification: G24, G30, G32

Suggested Citation

Song, Tianyi and Kutsuna, Kenji, Venture capital investment and institutional factors: Evidence from China (February 18, 2022). Available at SSRN: https://ssrn.com/abstract=3866103 or http://dx.doi.org/10.2139/ssrn.3866103

Tianyi Song (Contact Author)

Kobe University - Graduate School of Business Administration ( email )

2-1, Rokkodai-cho, Nada-ku
Kobe, 657-8501, 657-8501
Japan

Kenji Kutsuna

Kobe University - Graduate School of Business Administration ( email )

2-1, Rokkodai-cho, Nada-ku
Kobe, 657-8501, 657-8501
Japan

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