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Does venture capital ownership suppress labor income share?

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  • Guo, Xiuhong
  • Hao, Qichao
  • Huang, Qixing

Abstract

This study examines the impact of venture capital (VC) on labor income share, also known as labor share, using a dataset of 28,391 firm-year observations from Chinese A-share listed companies between 2007 and 2022. We found that VC-backed firms have labor income shares 0.33 % to 1.4 % lower than non-VC firms, a result robust for PSM-DID regressions and instrumental variable analyses. Mechanism analysis shows that VC actively reduces labor income share by curbing labor hoarding and lowering human capital upgrade costs, consistent with VC's governance model prioritizing operational efficiency.. Amid the limited research on VC’s distributional effects, this study provides firm-level evidence on this topic, documenting a specific channel through which VC's governance model impacts firm-level income allocation. Focusing on China’s dynamic market, where VC has grown significantly, our findings highlight a specific trade-off between VC’s efficiency-seeking interventions and labor income share, and provide scholars a new perspective on capital-driven economic impacts.

Suggested Citation

  • Guo, Xiuhong & Hao, Qichao & Huang, Qixing, 2026. "Does venture capital ownership suppress labor income share?," Finance Research Letters, Elsevier, vol. 88(C).
    • Handle: RePEc:eee:finlet:v:88:y:2026:i:c:s1544612325024079
    DOI: 10.1016/j.frl.2025.109158
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