The Effect of Policy Uncertainty on VC Investments Around the World

Lubomir P. Litov; Xia (Summer) Liu; Romora E. Sitorus

doi:10.1561/108.00000065

journal article Feb 22, 2024

The Effect of Policy Uncertainty on VC Investments Around the World

Lubomir P. Litov Xia (Summer) Liu Romora E. Sitorus

Journal of Law, Finance, and Accounting Vol. 8 No. 1 pp. 1-53 · Emerald

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Abstract

This study documents a significant negative relationship between policy uncertainty and venture capital (VC) investment in startups across emerging venture capital markets (i.e., outside the United States). The adverse effect of policy uncertainty is exacerbated for younger and early-stage startups. By contrast, the effect is attenuated for startups that have headquarters in cities with a high concentration of global VC investment, in countries with more developed stock markets, or if the VC is led by a bank or a corporate entity. Using close national elections to alleviate endogeneity concerns, we find that the baseline results continue to hold. Furthermore, this study provides evidence that uncertainty increases the number of financing rounds, decreases the fraction of investment amount during the first round, and reduces the likelihood of successful exit through acquisition. Finally, we also find that policy uncertainty reduces the amount of cross-border VC investment.

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Details

Published: Feb 22, 2024
Vol/Issue: 8(1)
Pages: 1-53

Authors

L

Lubomir P. Litov

University of Oklahoma Price College of Business, , , ,

X

Xia (Summer) Liu

Robins School of Business, University of Richmond , , ,

R

Romora E. Sitorus

Indonesian Ministry of Economic Affairs , ,

Cite This Article

Lubomir P. Litov, Xia (Summer) Liu, Romora E. Sitorus (2024). The Effect of Policy Uncertainty on VC Investments Around the World. Journal of Law, Finance, and Accounting, 8(1), 1-53. https://doi.org/10.1561/108.00000065

The Effect of Policy Uncertainty on VC Investments Around the World

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