Economic policy uncertainty and herding behavior in venture capital market: Evidence from China

Yicong Sun and Hui Fu

Pacific-Basin Finance Journal, 2025, vol. 92, issue C

Abstract: This paper investigates the impact of economic policy uncertainty (EPU) on herding behavior in China's venture capital market from 2002 to 2021. The study finds a significant negative relationship between EPU and herding behavior, indicating that venture capitalists are more likely to make independent judgments when EPU rises. Mechanism analysis reveals that under high EPU, investors become more specialized and favor stable mid‑to‑late‑stage projects, which in turn dampens market‑wide herding behavior. Further heterogeneity analysis shows that foreign-backed venture capital firms exhibit a more pronounced reduction in herding behavior, while government-backed institutions respond more weakly. In addition, experienced investors and early‑stage investors exhibit stronger reductions in herding when EPU rises. This study enriches the understanding of venture capital behavior under uncertainty and offers new empirical evidence to inform policymakers assessing how shifts in macroeconomic expectations influence the allocation of innovation capital.

Keywords: Economic policy uncertainty; Venture capital; Herding behavior (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0927538X25001404
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:92:y:2025:i:c:s0927538x25001404

DOI: 10.1016/j.pacfin.2025.102803

Access Statistics for this article

Pacific-Basin Finance Journal is currently edited by K. Chan and S. Ghon Rhee

More articles in Pacific-Basin Finance Journal from Elsevier
Bibliographic data for series maintained by Catherine Liu ().