Improving the performance of governmental venture capital firms: Reforms at Shenzhen Capital Group

Abstract

ABSTRACT This paper documents how Shenzhen Capital Group (SCG) tackled agency problems faced by governmental venture-capital firms (GVCs) by adopting an expansion strategy and undertaking a series of reforms in its compensation scheme and decision-making process. Empirical results show that after SCG’s reforms, portfolio companies funded by SCG or a SCG-led syndicate were more likely to achieve successful exits through IPO or M&A than those financed by other GVCs. This paper provides evidence and a live example of how GVCs can effectively mitigate agency problems to achieve better performance.