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.

This paper investigates the impact of historical commercial social capital on contemporary private investment choices. We use unique data on shanghui, which represented the most important institutionalization of commercial social capital in China's financial industry in the late Qing Dynasty, to find that the establishment of shanghui is associated with a significant increase in residents' private risky asset investment today. The impact originates mainly from (i) an increase in local available investment finance, (ii) individuals' higher financial knowledge and literacy, and (iii) individuals' higher trust level and risk-taking abilities in the financial market. From a historical perspective, this study partially explains the current private investment choices and household financial investment imbalance in China.

This study identifies a new economic benefit of common institutional ownership, which refers to the increasingly contentious phenomenon of U.S. firms sharing stockholders with their industry competitors. We find a significantly negative relation between common ownership and insider trading profitability. The disciplinary effect of common ownership on opportunistic insider trading is particularly evident when the information effects of common ownership are greater, when common owners are more likely to benefit from positive governance externalities, and in the subset of trades made by opportunistic insiders. Using the exogenous variations in common ownership induced by financial institution mergers, we conduct a difference-in-differences analysis and find consistent results. We also provide evidence that common owners encourage firms to impose ex-ante restrictions on insider trading and take ex-post actions to discipline opportunistic insiders by voting against management. Overall, our findings suggest that common institutional shareholders have information advantages, governance incentives, and effective means to constrain opportunistic insider trading.

We examine how sovereign wealth fund (SWF) investments affect target firms' cost of debt. Using a large sample across 39 countries from 2004 to 2019, and applying a difference-in-differences (DiD) approach, we find that the loan spread of target firms decreases after equity investment by SWFs. This result holds when we use alternative specifications, and address endogeneity issues. Moreover, the negative effect is more pronounced for borrowing firms with higher risk. We also show that SWFs help reduce the cost of debt when they have a strong connection with the lead banks.

Whether and how credit default swaps (CDSs) affect corporate debt structure remains an unanswered question. We find that firms use more public debt relative to bank debt when CDSs referencing their debt start trading. The results are robust to the endogeneity of CDS trading. Furthermore, the increase in public debt is concentrated in senior bonds and notes, which are the most common CDS reference assets. The effect of CDS trading is most pronounced when bond underwriters take a net selling CDS position and for informationally opaque firms. These findings suggest that the hedging and informational roles of CDSs have real effects on corporate debt structure.

This study examines whether the proportion of equity-based compensation in outside director compensation is associated with corporate strategic alliances. We hypothesize that equity incentives provided to outside directors mitigate potential agency conflicts between outside directors and shareholders that arise from the strategic alliance decision-making process, thus resulting in more alliance activities. Our empirical evidence indicates that the percentage of equity in outside director compensation is positively associated with the incidence and the number of strategic alliance activities. Additionally, when the proportion of outside directors' equity in total compensation is higher, firms with strategic alliances generate better future stock returns. Overall, our findings suggest that providing equity incentives in outside director compensation mitigates the agency problems inherent in corporate strategic alliance decisions and enhances the quality of alliance activities.

We examine sunshine-induced mood and its impacts on investors' bidding decisions in the primary market where seasoned equities are offered. Analyzing a unique database that records seasoned equity offerings (SEOs) investors' locations, identities, and bidding information, we examine the degree to which sunshine exerts an influence on investors' bidding behaviors (and subsequently SEO discounts) from two dimensions: sunshine intensity and duration. We find that investors exposed to stronger sunshine intensity or longer sunshine duration submit a higher bid price for SEOs, thus leading to lower offer discounts. We also find that mood misattribution and risk-taking act as channels to rationalize such a sunshine effect. Our moderating analyses indicate that the documented impact strengthens in the case of greater uncertainty, less-frequent bidders, retail investors, and lower levels of investment. These sunshine effects impact failed bids, SEO participation and SEOs' long-term performance. Our study provides original evidence that investors in the primary market can be influenced by a sunshine-induced mood, which, in turn, determines the cost of equity financing.