Gain or pain? New evidence on mixed syndication between governmental and private venture capital firms in China

I investigate the performance of mixed syndication involving both governmental and private venture capital firms (GVCs and PVCs) in the context of China. Using the data on the investments in start-ups between 1995 and 2011, I find that start-ups backed by mixed syndication in their initial financing round are less likely to survive to the next round to obtain refinancing, compared to those backed by syndication solely among PVCs. I present evidence consistent with two possible explanations of the underperformance of firms backed by mixed syndication: a potentially lower criterion of selecting portfolio companies when led by PVCs and less complementary resources but higher coordination cost in mixed syndication. The empirical results continue to hold when using instrumental variables, propensity score matching analysis and the quasi-maximum likelihood estimation method for mitigating the potential selection bias and endogeneity problems.     

Assessing mission drift at venture capital impact investors

In this article, we consider a recent trend whereby private equity available from venture capital (VC) firms is being deployed toward mission‐driven initiatives in the form of impact investing. Acting as hybrid organizations, these impact investors aim to achieve financial results while also targeting companies and funds to achieve social impact. However, potential mission drift in these VCs, which we define as a decoupling between the investments made (means) and intended aims (ends), might become detrimental to the simultaneous financial and social goals of such firms. Based on a content analysis of mission statements, we assess mission drift and the hybridization level of VC impact investors by examining their missions (ends/goals) and their investment practices (means) through the criteria of social and financial logic. After examining eight impact‐oriented VC investors and their investments in 164 companies, we find mission drift manifest as a disparity between the means and ends in half of the VC impact investors in our sample. We discuss these findings and make suggestions for further studies.     

The different roles played by venture capital and private equity investors on the investment activity of their portfolio firms

Venture capital (VC) and private equity (PE) investors play different roles in their portfolio companies. We argue that this will translate in a recognizable difference in the investment sensitivity to cash flows of portfolio companies and its evolution after the first investment round. We hypothesise that VC, thanks to its ability in overcoming asymmetries in information, will entail a reduction in the financial constraints which hampered the growth of investee firms. We predict, instead, a greater dependency of investments to cash flow for PE-backed companies, driven by the renewed interest for growth of their management combined with higher leverage. We find evidence confirming our hypotheses on a large panel of Spanish unlisted firms in low and medium technology sectors, where both VC and PE firms are active.     

How to Design Public Venture Capital Funds: Empirical Evidence from South Korea

This study examines the effects of several features of government‐managed, sponsored venture capital (VC), and private VC funds on overall VC investments in new technology‐based firms (NTBFs) during two developmental stages (i.e., growth and restructuring) in South Korean VC market and suggests hints for designing effective government VC programs. Our results from data on 463 funds in the period 1995–2005 indicate the factors bearing a positive effect on VC investments targeted to NTBFs. Such factors are the fund specialization focusing on certain industrial sectors, performance‐sensitive compensation for venture capitalists in private and government VC funds.     

国有股权参股对民营企业风险承担水平的影响——基于上市民营企业的数据研究

风险承担是企业成功的关键，有助于提高企业的经营绩效与股东财富，但民营企业往往面临着风险承担水平不足的问题，在国家大力发展混合所有制改革的背景下，国有股权参股民营企业能否提高其风险承担水平呢？文章以2014-2019年上市民营企业为研究样本，重点考察国有股权参股是否以及如何影响民营企业的风险承担水平。研究结果表明，国有股权参股能显著提高民营企业的风险承担水平。进一步研究发现，当民营企业所处环境的政策不确定性高、参股国有股权来源于本地时，对风险承担水平的提高效果更为显著。文章的研究结论有助于深化对国有股参股及民营企业风险承担水平问题的理解与认识，为进一步推进混合所有制改革，促进民营企业可持续健康发展提供了新的理论支持与经验证据。     

Reassessing the relationships between private equity investors and their portfolio companies

The scope and purpose of this special issue is to reassess the relationships between private equity (PE) investors and their portfolio companies in the light of the need for venture capital/ private equity (VC/PE) firms to adapt their strategies for value creation in the light of the recent financial crisis. We particularly focus upon VC/PE characteristics that differently contribute to portfolio firm performance. The papers presented in this special issue capture this aim in various ways, reflecting the heterogeneity of VC/PE investors and the firms in which they invest. We begin this introductory paper by providing a brief overview of each paper’s contribution. We articulate themes for an agenda for future research relating to the heterogeneity of investor types and the contexts in which they invest.     

CEO compensation in venture-backed firms

We hypothesize that because fast-growing young companies must raise money in private capital markets that contain significant financing frictions, the CEOs of such firms will be compensated for successful fundraising. Using a sample of 1585 private venture-backed U.S. firms, we find that the cash pay of entrepreneur-CEOs is increasing in both the quantity and quality of financing secured and is more sensitive to successful fundraising the more challenging and difficult is the fundraising task. Successful fundraising also increases the gap between the pay of CEOs and other executives. Finally, we show that while VC financing dilutes the CEO's fractional equity ownership, it increases the dollar value of that ownership.     

Institutional Ownership and Private Equity Placements: Evidence from Chinese Listed Firms

This paper examines the impact of institutional ownership on the performance of private equity placements (PEPs) for listed firms in China. We find that the presence of institutional investors can alleviate the information asymmetries between listed firms and the market. The market reaction to PEP announcements is significantly smaller if there is a higher portion of institutional shareholdings. Long‐term firm operational performance after PEPs is positively correlated with institutional shareholdings. Moreover, we find that the relationship between institutional shareholdings and PEP performance is mainly driven by nonlisted corporate investors and mutual funds. Finally, the relationship between PEP performance and institutional shareholdings is stronger in smaller PEP issuers.     

Venture capital investor type and the growth mode of new technology-based firms

Independent venture capital (IVC) investors have more powerful incentives than corporate venture capital (CVC) investors to take actions that signal their capabilities (i.e. to “grandstand”). We argue that this should engender differences in the treatment effect of IVC and CVC on the mode of growth of portfolio companies. Short-term sales growth of IVC-backed firms in the period that immediately follows the VC investment should outpace that of CVC-backed firms, while we expect no difference in employment growth. We find support for these theoretical predictions on a sample of 531 Italian new technology-based firms, using several panel estimators to control for endogeneity of IVC and CVC.     

The impact of residual government ownership in privatized firms: New evidence from China

This study investigates the determinants of residual government ownership and the impact of such ownership on post-privatization performance in China. Using hand collected data, we find that government shareholders are more likely to be present in small firms, while large firms are more likely to have politically connected CEOs on their boards. Contrary to the “political interference” hypothesis, our results show that residual government ownership has a positive impact on Tobin's Q. This study indicates that when the risk of expropriation by parent companies is high, government shareholders can add value to firms by signalling their commitment to privatization.     

Can Spending Time in the Minors Pay Off? An Examination of the Canadian Junior Public Equity Markets

This paper tests whether the junior public equity markets serve as an effective development market for early‐stage firms compared to private venture capital (VC). Focusing on the Canadian market, we compare the long‐run stock performance of firms that graduate from the Toronto Venture Stock Exchange (TSX‐V) to the Toronto Stock Exchange (TSX) against the performance of VC‐backed firms that have a direct IPO on the TSX. Controlling for various confounders and possible selection biases, we find that TSX‐V graduations significantly outperform VC‐backed IPOs by 28.2 percentage points in the three years following the TSX listing. Our results are consistent with the idea that a TSX‐V listing provides the insiders of early‐stage companies with valuable public‐markets experience.     

How does governmental versus private venture capital backing affect a firm's efficiency? Evidence from Belgium

We investigate the implications of venture capital (VC) investor type (government or private) on the operating efficiency of a sample of 515 Belgian portfolio firms up to 3 years after the investment. We find that the government VC-backed firms display significant reductions in productivity. No significant differences in efficiency are found in firms backed by private VC compared with their non-VC-backed peers. Finally, significant reductions in efficiency exist in targets of government VC compared to their non-VC-backed peers.     

Venture capitalists at work: A diff-in-diff approach at late-stages of the screening process

In this paper we use a new methodology aimed at identifying only the venture capitalists (VC) treatment effect: we compare a representative sample of firms financed by private VC in the period 2004–2014 with a sample of firms rejected by VC at the very late-stages of the screening process. These firms narrowly lost the contest and are hence very similar, before VC financing, to the VC backed firms; self-selection is specifically taken into account. In line with previous results, Italian startups financed by VC reach a larger size and become more innovative than other startups. On the contrary, sales growth is similar and profitability is worse than firms in the control group. VC-backed companies experience larger rise in labor costs, while the commercialization of their innovative projects takes longer: this explains their worse profitability and the deterioration in their credit score. Both effects tend to disappear after four years from VC financing, when sales increase for VC-backed firms at the same pace as for the control group. Unlike other studies, no differences are detected for the survivorship rates of VC-backed firms in Italy. We also provide new evidence on the impact of VC on firms’ financial structures: VC-backed firms show a much larger increase in equity; this rise is however only half the increase in total assets that is hence not only explained by the injection of VC equity. Another result in this direction is that the effects on firms’ size and innovation hold when we restrict the control group to firms that also increase their equity from investors different from VC; this suggests that VC effects on size and innovation might also be linked to their managerial expertise and network connections. Finally, in line with previous evidence, the effects found in the paper are exclusively driven by independent VC investors compared with captive VC.     

Do bank loans still convey information to investors? Evidence from the split share structure reform in China

Bank loans can convey information about the borrowing firms that have proper corporate governance systems. Using a sample of bank loan announcements in China, we find that the market reaction is positive after the split share structure reform in 2005, which aligns the interests of large shareholders and minority shareholders, government and public investors, and alleviates their tunneling incentives. We also find that this effect is more pronounced for private firms as the reform mainly enhances corporate governance for private firms. The signaling role of bank loans is less pronounced for firms with less severe information asymmetry after the reform, e.g. higher shareholdings of mutual funds and higher proportion of independent directors. Related party transactions decrease when they obtain bank loans after the reform, which reflects the alleviation of tunneling after the reform.     

Equity-worthiness and equity-willingness: Key factors in private equity deals

While access to private equity funds (PEFs) provides a unique opportunity for firms to set up sturdy growth paths, how PEFs select companies is an unknown process to entrepreneurs and business owners. This study aims to offer insights regarding the private equity market to entrepreneurs searching for external capital. We analyzed a novel dataset of 240 pre-deal negotiations between small- and medium-sized Italian companies and a closed-end fund. Results indicate that the successful closing of a deal depends on more than just the target firm's equity-worthiness (i.e., the company's ability to meet the expectations of a private equity investor). In fact, there is another dimension: the target firm's equity-willingness (i.e., the company's motivations to accept an outside equity investor). We summarize the results of our study by building a 2x2 positioning matrix on the basis of the target firm's equity-worthiness and equity-willingness. This matrix enables entrepreneurs to grasp how private equity investors evaluate their firms.     

Do Chinese firms benefit from government ownership following cross-border acquisitions?

Chinese firms’ increasing cross-border acquisitions (CBAs) in recent years seem to challenge the explanatory power of received theories of multinational enterprise (MNE) due to their relatively unique characteristics and the active role of the Chinese government. In this study, we seek to revisit and contextualize the OLI paradigm in conjunction with the institution-based view and examine how Chinese firms’ post-CBA long term performance is associated with government ownership. Our study shows that Chinese firms with more government ownership demonstrate better post-CBA long term performance. However, the above relationship is differentially moderated by such firm-level boundary conditions as political connections and financial slack, and the country-level institutional boundary conditions (i.e., the host country formal institutions and the home-host country cultural distance). We discuss our findings in detail and explore theoretical and practical implications for both Chinese firms and other emerging economy (EE) firms.     

The role of private versus governmental venture capital in fostering job creation during the crisis

Small Business Economics - We analyze whether young entrepreneurial ventures backed by different types of venture capital firms, i.e., private (PVCs) vs. government-owned (GOVCs), experience higher...     

The institutional determinants of private equity involvement in business groups—The case of Africa

This study examines the governance attributes of post-IPO (initial public offering) retained ownership of private equity in business group constituent firms in contrast to their unaffiliated counterparts, in 202 newly listed firms in 22 emerging African economies. We adopt an actor centered institutional-theoretic perspective in rationalizing institutional voids and the advantages of maintained governance by both business angels (BA) and venture capital (VC) private equity. Our findings reveal private equity retain higher post-IPO ownership in business group constituents compared to unaffiliated firms and that this is inversely moderated in the context of improving institutional quality – where this is particularly strong in case of foreign VC as opposed to domestic VC or BA. Our result adds to the literature on multifocal corporate governance mechanisms and the institutional determinants of private equity investment.     

Is venture capital socially responsible? Exploring the imprinting effect of VC funding on CSR practices

We study how corporate social responsibility (CSR) is guided by ownership history, specifically whether a company receives venture capital (VC) funding or not. We argue that companies that receive VC funding are less likely to adopt CSR practices due to unique VC imprinting and that temporal and investment orientation moderate this relationship. We find that VC-backed companies have poorer CSR records, which do improve over time, but at a comparatively slower rate than non-VC-backed companies. However, when VC-backed companies receive funding from VC firms that have a responsible investment orientation and a broader stakeholder view, their CSR records are significantly better. This study contributes to our understanding of imprinting boundaries and related repercussions in stakeholder management strategies.     

Ownership structure and the diversification and performance of publicly-listed companies in China

The growth and heightened competitiveness of listed companies in China share several central features. These include the gradual transition of state-owned assets to private investors, a rapid pace of product diversification, and impending rapid growth into international markets. In this article, we focus on measuring and identifying the implications of the ownership structure and diversification strategy of listed companies in China. We highlight recent developments in the ownership transition of China's companies, and point to an ownership classification system that can better identify and address differences in the motivations, strategies, and performance of these companies.