The Empirical Study Of The Ex-ante And Ex-post Effect Of Venture Capital On The Operational Performance Of Small And Medium Sized Firms

In recent years,China's economic development has entered the state of “new normal”,facing strategic tasks of the optimization of economic structure and the shift to innovation-driven growth model,indicating that it is in the urgent need to stimulate the entrepreneurship and innovation of the whole society,and inject new dynamic into the sustainability of economic growth.But entrepreneurship and innovation activities are often accompanied by high risks,high inputs,and great uncertainty in the prospect.Banks and other traditional financial intermediaries are often hard to meet the financial needs of the small and medium-sized enterprises(SMEs),as main participants of entrepreneurship and innovation activities.At the same time,the mechanism of venture capital investments with “high risks,high returns”,has unique advantages of providing financial capital and value-added services to SMEs.Venture capitalists can not only play the role of “ex-ante detector” in recognizing ventures with investment values during the ex-ante screening process;but also monitor entrepreneurs' behaviors and entrepreneurial operational conditions closely,causing “ex-post treatment effect” on investees' operational performance during the ex-post phase of investment management.With the external institutional background and economic system different from western industrialized economies,China's venture capital industry has presented different characteristics in the behavior motivation,operational mechanism,and investment effects.Thus,the theoretical research and practical experience based on the western mature market conditions cannot be fully applied to the operational mechanism of venture capital investments in China.However,there is still little research on the endogeneity between venture capital and entrepreneurial performance in China.In this context,it will be of great theoretical and practical significance to systemically analyze the external institutional environment factors and internal mechanism of venture capital investments in China,empirically examine the ex-ante and ex-post effect of venture capital on SMEs' operational performance,and advocate policy recommendations for improving the efficiency of venture capital investments' management mode.Focusing on the study of the endogeneity problem between venture capital and entrepreneurial firms' performance,this paper aims to disentangle the ex-ante and ex-post effect of venture capital empirically,exploring whether venture capital firms can select ventures with superior performance during the ex-ante screening process,or generate significant ex-post treatment effect on ventures' performance promotion.Through the literature review,based on the principal-agent theory,resource based view,the institution-based theory;this paper systemically analyzed the behavior motivation,operational characteristics,as well as the ex-ante and ex-post mechanism of venture capital investments,based on the early stage of rapid expansion of China's venture capital industry and its specific institutional environment constraints.For the empirical study,utilizing the panel data of listed companies on the SME and GEM boards,this paper employed the PSM methodology and the panel difference in difference(DID)regression models,and the two-stage Heckman structure combined with endogenous switched regression models to disentangle the ex-ante and ex-post effect of venture capital on the SMEs' operational performance.Furthermore,this paper used difference in difference in difference(DDD)regression models to examine the moderating impact of the staged investments,syndicated investments,and political “connection” background on venture capital's ex-post effect.The main research conclusions reveal as following:Based on data of the listed companies on the SME and GEM boards,the panel regression models with random effect and the cross-section logit models were applied to examine the overall and ex-ante effect of venture capital respectively,and the results show: compared with non venture-backed firms,the venture-backed firms have significant performance superiority in the profitability and growth ability,which to some extent can be attributed to venture capital firms' positive screening ability and the investee firms' self-development ability.Venture capital has exerted significantly positive ex-ante screening effect on SMEs' operational performance in the profitability,growth ability and R&D investment.Based on the panel data of PSM matched sample firms,with the treatment group firms receiving the initial round of venture capital investments from 2005 to 2012,the DID models were applied to examine the ex-post effect of venture capital,and the results show: venture capital firms have played the positive role as the financier in enhancing investees' debt paying ability and R&D investments;but exerted significant hampering ex-post effect on SMEs' performance in the profitability and growth ability.The estimation results of the two-stage Heckman combined with endogenous switched regression models also prove: venture capital firms have exerted positive ex-ante screening effect;but negative ex-post effect on SMEs' operational performance in profitability and growth ability,due to the “grandstanding motivation” and “short-sighted” investment characteristics etc.The DDD models combined with T tests were applied to examine the moderating impact of venture capital investments' characteristics on the ex-post effect,and the results reveal: the staged venture capital investments have exerted significantly smaller negative ex-post effect on SMEs' performance in profitability and growth ability than those single-rounded;the syndicated venture capital investments have exerted significantly greater negative ex-post effect on SMEs' performance in profitability than those non-syndicated;the venture capital investments with political “connection” background have exerted significantly greater negative ex-post effect on SMEs' performance in growth ability than those without political “connection”.This paper extends the research of endogeneity problem between venture capital and entrepreneurial firms to the development of China's venture capital industry for the first time.Through the theoretical analysis from institution-based view,this paper has systemically studied the ex-ante and ex-post mechanism of venture capital investments,upon the joint influence of external institutional environment factors and internal investment operation characteristics.Using data of the listed companies on the SME and GEM boards,this paper has empirically estimated the ex-ante and ex-post effect of venture capital on SMEs' operational performance,and the moderating impact of venture capital investments' characteristics on the ex-post effect for the first time.By using the PSM methodology,DID and Heckman two-stage regression models etc.controlling the sample selection bias problem,this paper has verified: based on the early stage of rapid expansion of China's venture capital industry,the positive correlation between venture capital and SMEs' operational performance can be mainly attributed to venture capital firms' positive ex-ante screening effect;however with the “short-sighted” investment characteristics,venture capital firms have exerted negative ex-post effect on SMEs' profitability and growth ability;the staged investments have exerted the weakening moderating impact on venture capital's negative ex-post effect;the syndicated investments and the political “connection” background have exerted the strengthening moderating impact on venture capital's negative ex-post effect.The research findings can provide important theoretical references and empirical evidences for explaining the origin of mechanism of venture capital investments in China,and offer significant guidance for the venture capital market supervision and the participants to rationally select investment and financing strategies.