Using a large sample of over 5,000 start-ups across various industries and 524 media outlets in China between 2000 and 2016, we examine the effects of media coverage of start-ups on VC investment decisions and performance. To the best of our knowledge, for the first time in the finance literature, we have discovered that media coverage of start-ups significantly affects VC investment decisions and exit performance. Specifically, such coverage, especially positive coverage, significantly increases the probability and amount of VC investments in start-ups. It also significantly improves the exit performance of VC investments. The significant effects of media coverage of start-ups on VC investments are driven by market-oriented instead of state-controlled media. We further find that VC investments in a focal start-up are significantly influenced by the average media coverage of other start-ups in the same industry or the same city. Our results are robust to a battery of robustness tests. Our research contributes to the behavioral finance literature by showing that an increasingly prominent type of institutional investors, venture capitalists, just like individual investors, are also subject to limited attention. Our research also extends the research by You, Zhang and Zhang (2018) by revealing the heterogeneous effects of market-oriented and state-controlled media on VC investments. Last but not the least, we are the first to discover that peer start-ups’ media coverage matters for VC investments in the focal firms, thereby pushing the frontier of research on the roles of media in finance.

This paper examines the effects of Chinese venture capital (VC)’s final exit on their portfolio companies. We find that, compared to other early investors, VCs achieve significantly higher returns from their exit of the portfolio companies. We use the presence of VC directors and the introduction of high-speed rail to address identification concerns. Announcements manipulation and earnings management are plausible channels through which VCs achieve higher returns when they exit from the companies. VCs’ exit negatively influences their portfolio companies’ long-term performance. Our paper sheds new light on the value creation role played by VCs and discovers a previously ignored adverse effect of VCs – the exploitation of their portfolio companies.

Exploiting staggered COVID-19 lockdowns and reopening across different regions in China, we study how lockdowns affect the investment decisions of venture capital (VC) investors and whether such changes are temporary or enduring in the post-pandemic era. Contrary to the conventional wisdom that lockdowns exacerbate the “tyranny of distance” (i.e., VCs avoid investing in remote ventures), our findings suggest the “death of distance”: VCs invest in remoter ventures during a lockdown and such effects persist even after the economy reopens. Such lockdown effects are more pronounced when there is better internet infrastructure, when the level of information asymmetry between VCs and entrepreneurs is lower, and when VCs are more experienced. The lockdown effects can be explained by the advancement and adoption of remote communication technology as a response to the social distancing requirements. As geographic boundaries of VC investment are shattered by remote communication technology, local competition among VCs has been intensified, the monopoly power of VCs has been curtailed, and the regional inequality of entrepreneurial access to VC financing has been mitigated.

We examine the impact of mixed ownership on the performance of venture capital (VC) firms in China. We use successful/unsuccessful exits from VC-financed entrepreneurial companies and number of patent applications by VC-financed companies as proxies for VC firms’ performance. Consistent with existing research on the inferior performance of SOEs relative to non-SOEs, we find that on average government-controlled VC firms (GVCs) underperform domestic private investors-controlled VC firms (PVCs). More importantly, we find that introducing minority private investors (i.e., mixed ownership) helps improve the performance of GVCs. However, we find no evidence that introducing minority government investors (i.e., mixed ownership) helps improve the performance of PVCs. Our results provide relevant information to the ongoing debate on the role of the government investors and private investors in developing the VC industry in emerging markets.

Exploring a novel dataset and a unique policy experiment, this paper examines the role of government intervention in the emergence of venture capital (VC) in China during 1999-2013. Using difference-in-difference methodology, I find that the central government program leads to an increase in local investment from both government and private VCs, which doubles the number of successful companies. The positive impact is most pronounced in relatively less developed regions and during the early development of the VC sector. I present two micro-level transmission channels of the crowding-in effects, through networks formed by previous investments and through co-ownership in VC affiliates.

We examine the effect of board members with venture capital experience (i.e., VC directors) on executive incentives at publicly listed firms. VC directors serving on the compensation committee are associated with greater CEO risk-taking incentives (i.e., vega) and greater pay-for-performance sensitivity (i.e., delta). These effects are more substantial if VC directors are from highly reputable VC firms. Using Regulation S-K requirements to disclose attributes of nominated directors as an instrument, we show that these results are causal. We also document that prior finding of greater research intensity and innovation when VC directors serve on boards of public firms are in part explained by the presence of increased risk-taking incentives of the CEO instilled by such directors. Lastly, we find that having VC directors on nominating and/or governance committees is associated with a higher likelihood of forced CEO turnover.

This paper examines the effect that venture capital (VC) has on the pay-performance relationship in listed Chinese firms. We find that VC has a significantly positive effect on CEO compensation and the pay-performance relationship, such effect particularly stronger in firms needing more managerial efforts and discretions (higher growth opportunity or higher levels of capital expenditure). In addition, we show that VC-backed firms with more managerial discretions are more likely to use stock options. The evidence suggests that venture capital investors use more sensitive compensation contract for top executives in Chinese when the need for managerial discretion is greater. Such compensation schemes by VCs enhance firm performance subsequently.

Although asymmetry of information and positive externalities in venture capital provide the justification for government intervention, no one can guarantee that distortion of resource allocation does not exist when government correct market failures. From the point view of incomplete contract theory, government intervention could affect the achievement of contract for the unverified information and actions, leading to inefficiency of venture capital, therefore It is important for us to understand the performance of public policy which is how to improve how to improve the venture capital. To establish the sequential offer game model with moral hazard of entrepreneur, considering with the additional funds provided by the government and certification of quality as well as the spillover effects of venture capital. Under the assumption that the government has the ability to identify high-ability entrepreneur, the introduction of government leading fund and the arrangement of control can induce more specific investment of entrepreneurs. The preceding investment provide investors with additional information, therefore it is optimal. The non-government leading fund supported entrepreneurs will face with worse situation since limited funding and the requirements of capital preservation. Therefore government leading fund should carefully select the investment strategy.

Using a proprietary dataset collected through a survey targeted to VC funds in Mainland China, we examine the impact of constructing VCs’ firms portfolio from industrial organization perspective on investment efficiency, portfolio size and structure of profit sharing. The results indicate that constructing VCs’ firms portfolio from industrial organization perspective improves investment efficiency because it reduces over investment and increases investment return. Moreover, it also further explains the disparities of VC’s portfolio size and structure of profit sharing between Mainland China and Western Countries. Additional tests provide evidence to suggest that the government assistance to VC industry has obvious political objectives in Mainland China.

This paper studies idiosyncratic risk of new ventures. An option-based model of a new venture with multistage investments and jumps is developed. Our model ex- plains (1) why new ventures?idiosyncratic volatility eventually decreases as they clear R&D investment stages and become mature ?rms ?the stage-clearing e¤ect; (2) the negative relation between jumps in value and subsequent idiosyncratic volatility ?the jump e¤ect; (3) the dynamics of idiosyncratic volatility under di¤erent schedules of staged venture capital investments; and (4) the e¤ect of di¤erent schedules of staged investments on ?rm valuation with the presence of jumps. Empirically, we develop a generalized Markov-Switching EARCH model to simultaneously capture structural changes in ?rms?idiosyncratic volatility and the relation between jumps and idiosyn- cratic volatility. Using a hand-collected dataset of early-stage biotech ?rms, we ?nd empirical evidence supporting the jump e¤ect and the stage-clearing e¤ect described by our model.