Venture Capital Participation Research Articles

Market uncertainties and too-big-to-fail perception: Evidence from Chinese P2P registration requirements

The enforcement of peer-to-peer (P2P) registration requirements in mid-2018 triggered a P2P market meltdown, highlighting the inherent challenge faced by Chinese market participants in distinguishing between genuine and fraudulent fintech firms. The difference-in-difference results suggest that the too-big-to-fail (TBTF) perception can effectively halve investor outflows and borrower outflows during periods of uncertainty. Dynamic analysis further validates the parallel-trend assumption and underscores the persistent influence of TBTF perception. Moreover, the empirical findings suggest that, in the face of a market downturn, fintech market participants become unresponsive to all other certification mechanisms, including venture capital participation, custodian banks, and third-party guarantees.

Does venture capital improve corporate social responsibility performance?

In recent years, market agents have paid more attention to firm-level sustainable developments, but the economic effects of venture capital on corporate social responsibility (CSR) performance are not clear. We empirically investigated this issue using data from Chinese nonfinancial A-share listed firms between 2010 and 2019. We found that venture capital participation may reduce the CSR performance of portfolio companies (e.g., SMEs), and the quality of internal control (ICQ) is an effective mechanism for venture capital to affect CSR performance. We offer new insights into the relationship between venture capital and CSR in emerging markets.

Venture capital, enterprise performance and accounting information quality (GEM listed companies China)

Aim of this study’s using the GEM listed companies’ data from 2015 to 2019, finding the relationship between venture capital, accounting information quality, and corporate performance. Through empirical analysis found that venture capital participation has a significant role in promoting corporate performance. Results show that higher accounting information quality has a significant role in promoting corporate performance. The characteristics of venture capital have a significant role in regulating the relationship between accounting information quality and corporate performance.

Role of Venture Capital in Enterprise Innovation Under Psychological Capital and Heterogeneity of Entrepreneur Capital.

This paper is to explore the impact of entrepreneurial psychological capital and capital heterogeneity on venture capital behavior, and further analyze the effect of venture capital on the innovation activities of enterprises. Based on the existing research results, this paper proposed hypotheses on the relationship between venture capital and technological innovation. According to the data samples of growth enterprises market (GEM) listed companies from 2010 to 2016, the main research variables were defined and a theoretical analysis model was constructed. The theory and empirical research clarify the relationship between venture capital and technological innovation. (1) According to the regression results of venture capital participation as well as innovation input and innovation output, the regression coefficients of venture capital participation are 0.609 and 0.203, which are significant at the levels of 10 and 1%, respectively. It indicates that venture capital participation has a positive impact on the innovation input and output of enterprises. (2) The coefficient of venture capital participation is positive, and the coefficient of is significantly negative. Therefore, the degree of product market competition has a significant moderating effect on the relationship between venture capital participation and technological innovation. Venture capital provides funding support for technological innovation in startups. At the same time, because it holds a certain percentage of shares, it participates in enterprise innovation activities and provides guidance for companies to maintain profitable growth, thereby improving their innovation awareness and level. This research makes up for the shortcomings of the previous research model that uses a single dimension to measure technological innovation. As a result, this study comprehensively investigates the impact of venture capital on the innovation input and output of enterprises, enhancing the integrity and reliability of previous research conclusions.

Does Venture Capital affect capital structure rebalancing? The case of small knowledge-intensive service firms

This study analyses small knowledge-intensive service (SKIS) firms’ capital structure rebalancing, before and after Venture Capital (VC) entry. We use data for a sample of 1161 Western European SKIS firms, for the period 2006–2015. Two sub-samples were created: one composed of firms before VC entry; the other composed of SKIS firms after VC treatment. We use panel data models and the system GMM (1998) dynamic estimator. The results obtained suggest that after VC entry, SKIS firms are close to the predictions of the pecking order theory. Therefore, SKIS firms after VC participation on firm equity, probably become less dependent on debt, choosing internal finance to fund assets that are firm-specific or have an intangible nature, and, hence cannot be pledged as collaterals.

Development of venture philanthropy in the conditions of the hybrid war: areas of improvement of accounting support

The article specifies that the combination of venture philanthropy and social investment principles leads to a high level of engagement and a long-term approach to creating the social effect of invested capital and the efforts of venture investors and recipient enterprises. The presence of military conflicts on the territory of Ukraine, as well as the fact of annexation of the Crimea make our country economically unstable and unattractive for potential investors. Therefore, there is a problem of finding new alternative sources of financing for the socio-economic development of economic entities, as well as certain socially disadvantaged groups of the population, which need social support from the state and indifferent investors. The nature and role of venture philanthropy in funding charitable activities of NGOs were identified during the research. Its main purpose is to assist non-profit organizations in the promotion of innovative ideas of a social nature, as well as to ensure the sustainable development of such organizations and their social projects, which are of great benefit to society and have a long-term social impact. In general, the use of venture philanthropy is an interesting approach to charity, combining best investment practices with nonprofit values to achieve the greatest social impact. This kind of charity has been found to mean attracting financial resources, time, reputation, personal and professional contacts, but at the same time it provides a much broader impact in addressing major social issues. Taking into account the identified specificity of financing social programs on the basis of venture philanthropy, the directions of improvement of accounting support of management of such financing were formed in order to further evaluate the effectiveness of venture capital participation in social projects.

Does Property Appropriation Hazard Matter in Cross-border Venture Capital Syndication?

Extant research demonstrates that property appropriation hazard may play a crucial role in shaping the international expansion mode of emerging market enterprises, but many of its implications are yet to be discussed thoroughly, for instance, the contexts and mechanisms that property appropriation hazard affect the strategies of emerging market venture capital (VC) firms. In this study, we examine the effect of property appropriation hazard on cross-border transactions, focusing on the syndication choice of cross-border VC investments. Utilizing in-depth data concerned with specific cross-border VC deals, this study suggests as the property appropriation hazard of home market increases, the VCs from emerging markets are more likely to syndicate with local VCs in host market. Furthermore, Bilateral investment treaties between home market and host market of the VCs can negatively moderate the positive relationship between property appropriation hazard and local VC participation. At firm level, we find bank affiliation has negative moderating effects on the positive relationship between property appropriation hazard and local VC participation. While considering the role of prior local experience of the VC form emerging markets, we find the moderating effect of prior host market successful exit experience on the relationship between property appropriation hazard and local VC participation shows no significant results.

Climate Policy and Clean Technology Innovation: Evidence from FITs Policy Influence on Global VC Renewable Energy Investment Success

This paper examines the impact of climate policy on technology transformation toward clean innovation in the context of private sector investment, providing empirical evidence supporting subsidy policy effect on alleviating global warming. In principle, the novelty of research root in that I provide conceptual view of efficient clean innovation, on which intuition discussion and supportive reasoning for utilizing sustainable VC success exit as appropriate proxy for clean technology progress along renewable energy investment value continuum were provide. I prove for validity by incorporating various green patent measurements into baseline regression model and result was robust. In practice, I analyze the global Venture Capital (VC) renewable energy investment success (proxy for cleantech entrepreneurship innovation) in relation to Feed-in-Tariffs (FITs) policy, I distinguish the empirical importance of FITs policy using variations in industry and VC participation, justifying industry exclusiveness and VC inclusive policy features. I hypothesize that FITs policy function by stimulating VC do a better job on soring and due diligence, along with enhancing portfolio company product market competition advantage; and accordingly, I construct specific test for individual pathways relying on VC characteristics, and prove for the coexistence of selecting explanation and product market competition explanation. I find strong and robust evidence that generous FITs policy significantly enhances sustainable VC investment performance, simulating clean technology innovation. Finally, in line with prior endogenous concerns, I exclude issues such as VC non-random matching, unrevealed latent variable concern and alternative explanations. I analyze research questions with multiple samples, including 1159 global VC investment in cleantech companies across 17 OECD countries as the major one, 541 cleantech project from developing economy, 1480 non-VC backed cleantech projects and 13891 VC backed projects from traditional sectors as supplemental samples.

Initial public offerings, subscription precommitments and venture capital participation

Past empirical research has shown that subscription precommitments by large blockholders can help certify firm value in new equity issues and influence the subscription decisions of small, relatively uninformed investors. This paper examines the role of insider participation by venture capitalists in initial public offerings and the association with price revisions during the bookbuilding period, the likelihood of completing the IPO and ownership retention in the post-IPO period. Using a hand-collected sample of 311 U.S. venture-backed firms going public during 2003–2016 and controlling for endogeneity in the choice to participate in the IPO, this study finds support for the certification role by venture capitalists during the IPO process. Insider participation in the S-1 filing is associated with smaller offer price revisions and positively associated with the offering being completed. A detailed analysis of ownership data in the post-IPO period documents that insider participation in the IPO is associated with a continuing role as shareholders in the years after going public, which is consistent with the certification hypothesis. This paper sheds new light on the role of venture capitalists in the IPO process.

Venture Capital Participation and Post-IPO Performance, an Empirical Research on Companies Listed in China

Extensive studies from American and some European stock markets have pointed out that venture capital (VC) has a constructive influence on sustainable developments of their invested companies. In this paper, RBF neural network, principal component analysis, and mean variance analysis are functional and well utilized to test the effects of VCs on enterprises' post-IPO performances in China. The empirical results indicate that venture capitals in China brought undesirable effects to both operating performance and market performance, but performed well in controlling harmful volatility. Therefore, we believe VC in China has a certain positive external but not internal influence on sustainable developments of their invested companies.

The impact of venture capital on investee companies: evidence from Spain

This paper examines the impact of venture capital investors on the financial structure of investee companies and the factors relevant to their capital structure, differentiated according to the investor’s public or private nature. This paper contributes to our understanding of the beneficial effects of such investors in response to the funding needs of SMEs and the decisions taken in this respect. The empirical analysis shows that, on average, these investee companies have a lower level of short-term debt than the average Spanish company. It is suggested that the debt structure is related to the growth opportunities presented, the business sector, the geographic location and the duration of the venture capital participation. These results, which are more significant in the case of companies receiving funds from public investors, highlight the effectiveness of the economic function of venture capital.

Success in Global Venture Capital Investing: Do Institutional and Cultural Differences Matter?

AbstractWe analyze the impact of institutional and cultural differences on success in global venture capital (VC) investing. In both developed and emerging economies, superior legal rights (and enforcement) and better developed stock markets significantly enhance VC performance. Remarkably, cultural distance between countries of the portfolio company and its lead investorpositivelyaffects VC success. Further analysis reveals that cultural differences create incentives for rigorous ex ante screening, improving VC performance. Finally, local VC participation enhances success and mitigates foreign VCs’ “liability of foreignness,” albeit only in developed economies. Our findings follow from analyzing VC investments in nearly 10,000 companies across 30 countries.

The failure to obtain VC financing in the pre-start-up phase: Evidence from the Portuguese context

In this paper, we contribute to the literature on access to venture capital during the pre-start-up phase of innovative firms by identifying the reasons for failing to obtaining formal VC according to nascent entrepreneurs. The main reasons cited for not obtaining venture financing were the small size of the VC market and limited public policies to support venture capital participation. The sub-sample of nascent entrepreneurs who based their financing proposals on more complete business plans included “lack of interest of the venture capitalists in pre start-up phase investments” as the number one reason.

An empirical study of the effect of venture capital participation on the accounting information quality of IPO firms

Using a sample of IPO companies on the Shenzhen Small and Median Enterprise Board and the ChiNext Stock Market between 2005 and 2009, this paper analyzes the effect of venture capital participation on accounting information quality. We find that venture capitalists have a significant effect on earnings management, with reduced discretionary accruals before the expiration of the equity lock-up period and enhanced discretionary accruals after the expiration of the equity lock-up period. Our findings support the moral hazard hypothesis of venture capital, but not the certification/monitoring role of venture capital in IPOs. In addition, we find that venture capital plays a more important role in the earnings management of non-state-owned IPO companies than of state-owned companies.

Venture Capital Ownership and Contracting During the Brazilian IPO Boom

The Brazilian capital markets have recently gone through an Initial Public Offering (IPO) boom in the Sao Paulo Stock Exchange (BM&FBovespa). This paper discusses the involvement of the venture capital (VC) industry in this phenomenon, based on empirical evidence of VC ownership and VC contracting at the time of the IPO boom. This paper builds upon this empirical evidence to test a number of theories that have emerged recently to explain characteristics of VC’s investments and exit strategies. We analyze in which listing segments the IPOs of VC and non-VC backed firms were conducted. We compare the ownership structures of VC backed and non-VC backed companies listed in the BM&FBovespa’s IPO wave. We then analyze changes in the ownership structures of VC backed companies in the pre-IPO and post-IPO periods. We test whether companies with VC participation adopt a more dispersed ownership structure ex-post the IPO period than companies that do not have present these investors. We then access whether VCs exit the companies during the IPO. We additionally explore the characteristics of VC private contracting. We verify whether VCs have a disproportional board representation in relation to their capital investment. We also collect information on the veto rights that VCs may have on corporate decisions.

Success in Global Venture Capital Investing: Do Institutional and Cultural Differences Matter?

We analyze the impact of institutional and cultural differences on success in global venture capital (VC) investing. In both developed and emerging economies, superior legal rights (and enforcement) and better-developed stock markets significantly enhance VC performance. Remarkably, cultural distance between countries of the portfolio company and its lead investor positively affects VC success. Further analysis reveals that cultural differences create incentives for rigorous ex-ante screening, improving VC performance. Finally, local VC participation enhances success and mitigates foreign VCs’ liability of foreignness, albeit only in developed economies. Our findings follow from analyzing VC investments in nearly 10,000 companies across 30 countries.

The path-to-profitability of Internet IPO firms

Extant empirical evidence indicates that the proportion of firms going public prior to achieving profitability has been increasing over time. This phenomenon is largely driven by an increase in the proportion of technology firms going public. Since there is considerable uncertainty regarding the long-term economic viability of these firms at the time of going public, identifying factors that influence their ability to attain key post-IPO milestones such as achieving profitability represents an important area of research. We employ a theoretical framework built around agency and signaling considerations to identify factors that influence the probability and timing of post-IPO profitability of Internet IPO firms. We estimate Cox Proportional Hazards models to test whether factors identified by our theoretical framework significantly impact the probability of post-IPO profitability as a function of time. We find that the probability of post-IPO profitability increases with pre-IPO investor demand and change in ownership at the IPO of the top officers and directors. On the other hand, the probability of post-IPO profitability decreases with the venture capital participation, proportion of outsiders on the board, and pre-market valuation uncertainty.

Sorting things out: valuation of new firms in uncertain markets

AbstractNew business models combined with a lack of objective operating data result in significant information asymmetry and uncertainty in the valuation of new firms in emerging markets. Information asymmetry increases the risks of both adverse selection and moral hazard. When traditional differentiators of firm quality are lacking, such as in emerging economic sectors, markets may turn to secondary information sources to filter and sort firms. We investigate the roles played by observable corporate governance characteristics as indirect indicators of new firms' potential qualitative differences. Markets may sort firms based on such characteristics because they are perceived to be correlated with desired but unobservable characteristics and actions and they lower the risks of both adverse selection and moral hazard. Our study of publicly traded U.S. Internet firms found that firm market valuation was strongly associated with corporate governance characteristics (e.g., executive and director stock‐based incentives, institutional and blockholder stock ownership, board structure, and venture capital participation). In addition, firm age moderated how markets used some quality proxies to determine firm valuation during the post‐IPO period. Copyright © 2003 John Wiley & Sons, Ltd.