The Benefit of Cross-Border Investments in the Chinese Emerging Venture Capital and Private Equity Market
2022, Finance, 43(3), pp.3-36
cross-border investment
private equity
initial public offering
mergers & acquisitions
Résumé
We compare the success rates of cross-border and domestic venture capital (VC) and private equity (PE) investments to determine whether foreign investors improve the development of an emerging VC/PE market. We examine a sample of 22,602 VC and PE investments made in 14,618 privately held Chinese companies between 2007 and 2016, analyzing the impact of sourcing capital abroad on the transaction outcome. We apply various empirical techniques to provide evidence that cross-border investments significantly increase the likelihood of a successful exit. Our results are robust with respect to syndication, reverse causality, and competing exit routes. This suggests that foreign investors can use their deep, international transaction experience, gained in mature markets, to support their investees and the development of emerging VC/PE markets.