Invest Local or Remote? COVID-19 Lockdowns and Venture Capital Investment

43 Pages Posted: 7 Jul 2021

See all articles by Pengfei Han

Pengfei Han

Peking University, Guanghua School of Management

Chunrui Liu

Tsinghua University - PBC School of Finance

Xuan Tian

Tsinghua University - PBC School of Finance

Date Written: June 21, 2021

Abstract

Exploiting the staggered introductions and lifting of COVID-19 lockdowns across different regions in China, we study how lockdowns affect the investment decisions of venture capital (VC) investors. China provides a unique setting that allows us to examine VC investment decisions after the pandemic is under control and lockdowns are lifted. Contrary to the conventional wisdom that VCs tend to invest in local ventures during lockdowns, we find that they invest in remote ventures during lockdowns and such effects persist even after lockdowns are lifted. Such lockdown effects are stronger when there is better internet infrastructure, when the level of information asymmetry between VCs and entrepreneurs is lower, when VCs are more experienced, and when ventures are in the early stages of development. The lockdown effects can be explained by the advancement of remote communication technology as a response to the social distancing requirements. As VCs invest in remote ventures, the regional inequality of entrepreneurial access to VC financing has been reduced. Our findings uncover how VC investors adapt to the pandemic and such changes can have long-lasting effects in the post-pandemic era.

Keywords: Venture Capital, Entrepreneurship, COVID-19, Pandemic, Lockdown

JEL Classification: G24, G23, L26

Suggested Citation

Han, Pengfei and Liu, Chunrui and Tian, Xuan, Invest Local or Remote? COVID-19 Lockdowns and Venture Capital Investment (June 21, 2021). Available at SSRN: https://ssrn.com/abstract=3871317 or http://dx.doi.org/10.2139/ssrn.3871317

Pengfei Han (Contact Author)

Peking University, Guanghua School of Management ( email )

No 5 Yiheyuan Road, Haidian District
Beijing 100871
China

HOME PAGE: http://https://sites.google.com/view/pengfeihan/home

Chunrui Liu

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengdu Road
Haidian District
Beijing 100083
China

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/

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
18
Abstract Views
186
PlumX Metrics