Work

How Does Policy Uncertainty Affect Venture Capital?

Year: 2023

Type: article

Abstract: This paper examines the effect of policy uncertainty on venture capital (VC) investment. Relying on plausibly exogenous variation in policy uncertainty caused by closely contested U.S. gubernatorial elections, we find that policy uncertainty negatively affects VC investment. The effect is more pronounced if VC investment is subject to higher illiquidity. However, some distinctive features of VCs (strategic motives, intensive post-investment monitoring, and preferences for early-stage and high-tech ventures) mitigate the effect of policy uncertainty, distinguishing the effect of policy uncertainty on VC investments (in private markets) from that in public markets. Our findings shed new light on the real effects of policy uncertainty in private markets. (JEL G24, D81, M13)

Source: The Review of Corporate Finance Studies

DOI: 10.1093/rcfs/cfad023

Authors: Xuan Tian, Yichu Wang, Kailei Ye

Institutions: Tsinghua University, University of Nottingham Ningbo China, University of North Carolina at Chapel Hill

Language: English

Topic: Private Equity and Venture Capital

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: green

Funder: National Natural Science Foundation of China

Award: G3015839814