Market Capacity, Information Exchange and Imperfect Matching: Evidence from the Chinese Venture Capital Market

Abstract

AbstractThis paper examines imperfect matching between venture capital (VC) firms and entrepreneurial firms in the VC market. We find an anomaly of imperfect matching evidenced by an inflection point of the matching structure in the Chinese VC market. When the market capacity is within a specific critical range, the greater the market capacity, the greater the degree of matching; when the market capacity exceeds a certain critical point, the greater the market capacity, the smaller the degree of matching. We further show that the degree of efficient information exchange in the VC market provides a powerful explanation for this anomaly. Our findings advance the research on matching structures at the market level, explain imperfect matching in the Chinese VC market from a unique angle and provide valuable policy implications for the development of VC markets.