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Venture capitalists' value-enhancing activities under weak protection of law

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  • Li, Hui
  • Wu, Xiaohui
  • Ye, Ying
  • Zeng, Qi

Abstract

Using two sets of hand-collected survey data, we studied the value-adding activities of venture capitalists (VCs) operating in the weak legal environment of China. VCs exert value-enhancing efforts in addition to monitoring through trust considerations. We identified the effects of three types of trusts, strategic reputation-based (C-trust), knowledge-based (K-trust), and identification-based (I-trust), on a company's performance while investing venture capital in China. We find that the C-trust acts only through increased use of complementary resources to improve a firm's performance. K-trust and I-trust can also stimulate in two other ways by reducing transaction costs and improving team-spirit.

Suggested Citation

  • Li, Hui & Wu, Xiaohui & Ye, Ying & Zeng, Qi, 2018. "Venture capitalists' value-enhancing activities under weak protection of law," Pacific-Basin Finance Journal, Elsevier, vol. 50(C), pages 26-40.
    • Handle: RePEc:eee:pacfin:v:50:y:2018:i:c:p:26-40
    DOI: 10.1016/j.pacfin.2017.12.006
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    Cited by:

    1. Balachandran, Balasingham & Williams, Barry, 2018. "Effective governance, financial markets, financial institutions & crises," Pacific-Basin Finance Journal, Elsevier, vol. 50(C), pages 1-15.

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    More about this item

    Keywords

    Venture capital; Trust; Firm performance;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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