Time: 13:00-15:00 (GMT), Wednesday, 27 January 2021
Presenters: Professor Victor Murinde, SOAS University of London and Dr Xiaoming Ding, Xi‘an Jiaotong-Liverpool University
Chair: Professor Victor Murinde, SOAS University of London
Online venue: Click here to join the seminar on Microsoft Teams (For any inquiry about how to join the online seminar, please contact Dr Meng Xie: xm1@soas.ac.uk)

Abstract
We investigate the impact of venture capital (VC) on corporate investment. We hypothesise that higher VC ownership is associated with higher investment efficiency. By using a sample of 10,824 firm-year observations, representing more than 2,565 individual Chinese firms, we uncover strong new evidence that VC enhances portfolio firms’ investment efficiency, after taking into account information asymmetry and agency costs. We find that VC-backed firms are less likely to experience under-investment, with no impact on over-investment. This result is in line with the monitoring hypothesis and confirms that institutional investors play a significant role in improving corporate value. Our main result is endorsed by several robustness tests, including alternative measures of expected investment, and various approaches used to control for endogeneity and self-selection bias. We also find that information asymmetry plays a mediating role: VC enhances portfolio firm efficiency via the indirect effect of information asymmetry on investment inefficiency, as well as the direct effect of reducing under-investment. Further test results reveal that the impact of VC ownership on corporate investment does not vary with portfolio firm’s financial constraints, nor with the local financial market development, thereby further confirming the monitoring role VC plays in enhancing corporate investment efficiency.

JEL Classification: G11; G24; G32; G34.

Keywords: Venture Capital; Corporate governance; Investment efficiency.

Authors: Qiong Ji, Xiaoming Ding and Victor Murinde