Unveiling the double-edged sword: Assessing the impact of venture capital market competition on startup success in China

Abstract

This paper investigates the influence of venture capital (VC) market competition on startup success using data from the Chinese VC market. By employing Bartik instrumental variables and the Heckman–Sørensen two-step method to tackle endogeneity, we demonstrate that VC competition hampers the matching process between high-quality startups and VCs, while promoting larger VC syndication. The adverse effects of VC competition on high-quality startups result in a negative correlation with their probability of success. Moreover, our supplementary analysis reveals that the negative effects of VC competition on the success of high-quality startups are attenuated within high-tech industries. Conversely, VC market competition does not exhibit a significant impact on low-quality startups. Consequently, policymakers face the challenge of striking a balance between fostering a competitive VC market and ensuring startup success.

Document Type

Journal Article

Date of Publication

1-1-2025

Funding Information

The Chinese Fundamental Research Funds for the Central Universities’ (SK2020053)

School

School of Business and Law

Copyright

subscription content

Publisher

Wiley

Comments

Liang, W., Zhou, X., & Huang, W. (2025). Unveiling the double‐edged sword: Assessing the impact of venture capital market competition on startup success in China. International Journal of Finance & Economics. Advance online publication. https://doi.org/10.1002/ijfe.70001

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Link to publisher version (DOI)

10.1002/ijfe.70001