Venture capital staging under economic policy uncertainty

Abstract

Drawing upon a duration analysis framework, this study investigates how economic policy uncertainty (EPU) affects investment staging decisions and exit outcomes in China's venture capital (VC) market. Analyses from a sample of 61,661 venture capital investment decisions support the prediction of the real options theory that VCs delay to refinance their portfolio companies under high EPU. However, such delay effect is largely weakened in severe-VC-competition and high-technology industries, and in better economic conditions. In addition, governmental VCs with greater exposure to economic policy uncertainty are more sensitive to EPU. We further provide evidence that the investments made in times of high EPU have a lower likelihood of successful exit.