This study investigates how economic policy uncertainty (EPU) affects venture capital (VC) contract terms. Using a unique database of contracts between VCs and entrepreneurial firms in China, we provide evidence that VCs include more investor-friendly covenants in contracts when EPU increases. Our findings hold across a battery of robustness checks, including addressing endogeneity concerns and using alternative EPU measures. Our mechanism analysis shows that higher investment risk and increased VCs’ bargaining power might be plausible reasons why EPU positively affects the presence of investor-friendly covenants in VC contracts.

This study investigates how economic policy uncertainty (EPU) affects venture capital (VC) contract terms. Using a unique database of contracts between VCs and entrepreneurial firms in China, we provide evidence that VCs include more investor-friendly covenants in contracts when EPU increases. Our findings hold across a battery of robustness checks, including addressing endogeneity concerns and using alternative EPU measures. Our mechanism analysis shows that higher investment risk and increased VCs’ bargaining power might be plausible reasons why EPU positively affects the presence of investor-friendly covenants in VC contracts.

This study investigates venture capital (VC) reputation impact on the pre-IPO performance of the entrepreneurial firms backed by three kinds of VCs. This study employs backward stepwise regression models following prior theoretical frameworks to examine the research question. Based on a database of the top 50 VC firms ranked during 2016 to 2020 and their portfolio firms. This study shows some contingent contribution to pre-IPO firm performance. Firstly, the reputation of the Chinese government-owned VCs is negatively associated with their portfolio firm performance. Still, there is a positive relationship between foreign and local private VCs. Secondly, entrepreneurial firm performance is significantly associated with industry policy and entrepreneur’s performance than VC reputation. This study has practical implications for entrepreneurs and limited partners regarding their corporation relationships with the Chinese VCs.

This paper examines the value of political connections in the Chinese IPO market. We find a positive relationship between CEO/chairman’s political connections and the probability of IPO approval of entrepreneurial firms. We further identify that minority shareholders value those connections and give a market premium to the connected firms after the firms go public. We provide evidence that connected independent directors and PE/VC investors bring important networks which facilitate firms’ access to the IPO market, albeit the former complements and the latter substitutes the CEO/chairman’s connections. We argue that in emerging markets where government intervention is still prevalent, the value of political connections does exist and entrepreneurial firms usually build political connections through different ways in order to facilitate their access the IPO market and obtain a higher market premium.

This paper examines the value of political participation by private entrepreneurs in China. Using a unique sample of all initial public offerings by entrepreneurial firms during 1994-2007 and political participation by the controlling entrepreneurs, we test the hypothesis that firms with entrepreneurs who participate in politics are able to exploit rent-seeking opportunities that normal firms do not have access to. We document that the long-run stock performance after the IPO of firms controlled by entrepreneurs who participate in politics is superior to that of common entrepreneurial firms. Our results also show that political participation has a significant positive effect on change in operating performance and a negative effect on first-day returns. Moreover, we find that economic development and local institutions are important for this value effect. The difference in performance is even larger in regions characterized by more abundant rent-seeking opportunities, indicating that the value effect of political participation likely originates from rent seeking. This finding is consistent with the hypothesis that political participation facilitates entrepreneurs’ rent seeking.

This paper examines the causes and consequences of venture capital (VC) stage financing. Using information about the geographic location of an entrepreneurial firm and the distance between the VC investor and the firm, I distinguish between three different hypotheses: the monitoring hypothesis, which argues that the VC staging and monitoring of entrepreneurial firms are substitutes; the hold-up hypothesis, which argues that staging is a mechanism for mitigating the hold-up problem between the entrepreneur and the VC investor; and the learning hypothesis, which argues that staging creates value through the real options generated by learning by VC investors. My analysis of the causes of stage financing suggests that VC investors located farther away from an entrepreneurial firm tend to finance the firm using a larger number of financing rounds, shorter durations between successive rounds, and investing a smaller amount in each round; however, VC investors’ propensity to stage is independent of whether or not the firm is located in a close-knit community. My analysis of the consequences of stage financing suggests that VC staging positively affects the entrepreneurial firm’s propensity to have a successful exit, operating performance in the IPO year, and post-IPO survival rate, but only if the firm is located far away from the VC investor; however, the entrepreneurial firm’s performance is independent of whether or not it is located in a close-knit community. Overall, the evidence supports the monitoring hypothesis, but does not provide any support for the hold-up or learning hypotheses.