Law enforcement quality and venture capital Efficiency: Evidence from China

IF 4.8 2区经济学 Q1 BUSINESS, FINANCE

International Review of Economics & Finance Pub Date : 2025-07-11 DOI:10.1016/j.iref.2025.104371

Yu Guo , Jie Li , Fengyuan Liu , Jianjun Li

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Abstract

This study examines how regional variations in law enforcement quality influence venture capital (VC) efficiency across Chinese provinces, despite the existence of a unified national legal system. Drawing on a comprehensive dataset comprising 20,982 VC investment rounds from 2000 to 2018, we find that regions with stronger law enforcement are significantly more likely to experience successful VC exits. These findings remain robust even after addressing potential endogeneity concerns and conducting comprehensive robustness tests. Further investigation reveals three key mechanisms through which enhanced law enforcement quality contributes to VC performance: the promotion of innovation efficiency, the alleviation of financing constraints, and the reinforcement of social trust between investors and investee firms. Moreover, the analysis indicates that this positive relationship is weakened by factors such as syndicated investments, geopolitical risks, linguistic differences between VCs and portfolio companies, increased geographical distance, and international VC involvement. Overall, our findings highlight the critical role of regional law enforcement in supporting the development of emerging industries through the venture capital ecosystem.

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执法质量与风险投资效率：来自中国的证据

本研究考察了尽管存在统一的国家法律体系，但执法质量的区域差异如何影响中国各省的风险投资效率。根据2000年至2018年期间包含20,982轮风险投资的综合数据集，我们发现执法力度更强的地区更有可能成功退出风险投资。即使在解决了潜在的内生性问题并进行了全面的稳健性测试之后，这些发现仍然是稳健的。进一步的研究揭示了执法质量提高对风险投资绩效的三个关键机制：提高创新效率、缓解融资约束、增强投资者与被投资企业之间的社会信任。此外，分析还表明，银团投资、地缘政治风险、风投公司与被投资公司之间的语言差异、地理距离增加以及国际风投参与等因素削弱了这种正相关关系。总体而言，我们的研究结果强调了区域执法在通过风险投资生态系统支持新兴产业发展方面的关键作用。

本文章由计算机程序翻译，如有差异，请以英文原文为准。

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来源期刊

International Review of Economics & Finance Multiple-

CiteScore

7.30

自引率

2.20%

发文量

253

期刊介绍： The International Review of Economics & Finance (IREF) is a scholarly journal devoted to the publication of high quality theoretical and empirical articles in all areas of international economics, macroeconomics and financial economics. Contributions that facilitate the communications between the real and the financial sectors of the economy are of particular interest.