Although the history of China's venture capital (VC) market is relatively short, it has already become the second largest VC market in the world and produced the second largest number of “unicorns” (startups with a valuation over $1 billion) after the US. Despite the remarkable growth of both China's tech sector and venture capital market, academic research in this area remains sparse. Two broad issues hinder the efforts of researchers studying this market: choosing the right data sources and understanding evolving institutional details. To address these two issues, I first describe available data sources, accompanied with filters aimed at improving the quality of the data. I then review institutional details unique to the Chinese setting and recent regulatory changes that have direct impacts on the Chinese venture capital market. I conclude by listing some open research questions.

Abstract We evaluate the impact of the Protecting Americans from Tax Hikes (PATH) Act of 2015, which allowed some existing venture-capital-backed startups to monetize their research and development (R&D) tax credits against payroll taxes in the United States. We show that marginally eligible startups increase their demand for R&D workers more than marginally ineligible startups after the PATH Act’s enactment. These effects are stronger among startups that are financially constrained. Marginally eligible startups subsequently recruit workers with more education and experience and file more patents with new inventors. Our findings suggest payroll tax credits are effective in scaling startups and stimulating R&D activities through skilled labor recruitment.

Abstract We provide new causal evidence for the impact of equity financing incentive on firms’ voluntary disclosure decisions by exploring the 2008 seasoned equity offering deregulation, which exogenously facilitates small firms’ access to public equity financing and increases their equity issuance incentives without changing their business and information environments. We argue that the heightened equity financing incentive due to the deregulation can motivate a firm to increase disclosures even in the period without actual equity issuance, because such disclosures, by signaling a commitment to disclosure, could reduce the cost of equity in case the firm issues equity in the future. Consistent with this argument, we find that, benchmarking against control firms that are not affected by the deregulation, an average treatment firm that is affected by the deregulation but does not issue equity provides more management earnings forecasts in the post-deregulation period. The effect is mainly driven by repeated forecasters and is more pronounced for firms with greater equity financing needs and firms with higher information asymmetry in the equity market.

For a large sample of U.S. firms from 1994 to 2009, we empirically examine the impact of corporate hedging on the cost of public debt. We find strong evidence that hedging is associated with a lower cost of debt. The negative effect of hedging on the cost of debt is consistent across industries, and remains economically and statistically significant under various controls and econometric specifications. A cross-sectional analysis based on propensity score matching suggests that hedging initiation firms experience a drop in cost of debt, while suspension firms sustain a jump. We confirm our findings after employing an extensive array of models to address potential endogeneity. The influence of hedging on cost of debt is mainly through the lowering of bankruptcy risk and agency cost, and the reduction in information asymmetry. Finally, hedging mitigates the negative effect of rising borrowing costs on capital expenditure and firm value.

Abstract Using random H-1B visa lotteries as a natural experiment, we find that firms respond to shortages of high-skilled workers by acquiring firms that employ such workers. The effect is stronger among firms with high human capital and more senior workforces, firms facing tight labor markets and legal barriers to poaching workers, and firms lacking foreign affiliates. The acquired workers are highly educated, sharing skills and occupations similar to those of the acquirer’s existing workers. Our findings suggest skilled labor is an important driver of acquisitions and acquiring is an effective means of obtaining skilled labor.

This paper examines the link between non-executive employee ownership and the terms and pricing of corporate loans. We find that a one-standard-deviation increase in employee stock ownership is associated with 1.67% decrease in loan spreads and one fewer restrictive loan covenant. The negative effect of employee stock ownership on loan spreads remains significant when we use within-firm variation and perform an analysis with instrumental variables based on demographic characteristics to address the concerns of endogeneity. Further analysis reveals that employee stock ownership may affect loan spreads by improving corporate governance, curbing managerial risk-taking, reducing information asymmetry, and improving employee retention. In contrast, we find that employee ownership via stock options is associated with greater loan spreads, perhaps owing to their convex payoff structure. Overall, our results underscore the importance of the level and structure of employee ownership for pricing corporate loans.

ABSTRACT This paper examines venture capital's (VC) role in the geographic clustering of high‐growth startups. We exploit a rule change that disproportionately impacted U.S. regions that historically lacked VC financing via a restriction of banks to invest in the asset class. A one‐standard‐deviation increase in VCs' exposure to the rule led to a 20% decline in fund size and a 10% decrease in the likelihood of raising a follow‐on fund. Startups were not wholly cushioned: financing and valuations declined. Startups also moved out of impacted states after the rule change, likely exacerbating existing geographic disparity in entrepreneurship.

We investigate the informational risk and price efficiency of Chinese firms undertaking a foreign IPO on the Hong Kong stock exchange between 1996 and 2012. Specifically, using intraday tick data, we examine the spreads, asymmetric information component of the bid-ask spread, autocorrelations of intraday returns, variance ratios and return predictability of the order flow for foreign IPO firms. We contrast these measures against those of comparable IPO firms on both the Chinese stock exchanges and the Hong Kong stock exchange matched based on the year of IPO, industry and firm size. We find that while the foreign IPO firms largely operate in China, they are generally perceived as having a similar level of information asymmetry and price efficiency as Hong Kong IPO firms. In contrast, IPOs on the Chinese exchanges have much higher proportions of information asymmetry in their spreads and lower price efficiency than foreign IPO firms. Our findings are generally robust to the use of the Heckman two-stage procedure that controls for potential self-selection bias. Our results provide further evidence that it is the location of trading that is important for pricing of firms rather than the location of their business.

We examine the role of high-skilled foreign labor in VC-backed startups through two natural experiments. First, we show that winning more H-1B visas in random lotteries enhances VC-backed startups’ financial performance, likelihood of going public, and quantity and quality of innovation. Second, we show that the H-1B quota reduction in 2004 caused permanent damage to the performance of startups that previously had used H-1B workers. The findings imply that high-skilled foreign workers possess skills or talents that are difficult to replace and that barriers to securing H-1B visas lower startups’ innovation and financial performance.