Do venture capital firms promote corporate social responsibility?

Abstract

We use venture capital firms, or VCs, in China from 2011 to 2017 to examine the treatment effect of their investments on corporate social responsibility (CSR) activities at the firms in which they invest (invested firms). Several results are noted. First, VCs, which are primarily profit making, promote research and development investments and firm value at the invested firm. Second, VCs provide advisory services to promote CSR activities at the invested firms, indicating significant VC treatment effect. Third, the impact of VCs on CSR activities at the invested firms is magnified when the VCs are reputatable or with foreign background. Finally, we also show that VCs improve the financial condition of the invested firms by reducing their financial constraints and facilitating greater access to bank loans, while CSR amplifies the VC’s effect on the firm’s financial condition.