Governors’ Tenure and Venture Capital Firms’ Early-stage Investing: A Subnational Institutional Perspective

Rui Shen (), Qingyun Lu (), Jun Yang () and Can Li ()
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Rui Shen: Zhejiang University
Qingyun Lu: Zhejiang University
Jun Yang: Zhejiang University
Can Li: Business School, China University of Political Science and Law

Small Business Economics, 2025, vol. 65, issue 1, No 22, 613-642

Abstract: Abstract Drawing on the subnational institutional perspective, the study examines the role of governors in shaping the institutional environment and altering venture capital (VC) firms’ perceived risks associated with early-stage investments. Using data about provincial governors and VC investments in China from 2000 to 2016, we find that VC firms’ early-stage investment relates to the local governor’s tenure in a U-shaped manner considering the varying level of political uncertainty jointly shaped by the governors’ incentives and capabilities over the tenure. The U-shaped relationship is steeper when the provincial governor is promoted to the current position and has substantial local experience, while is flatter for government-backed VC firms. Incorporating the political business cycle perspective, the study contributes to the institutional theory literature by highlighting the role of politicians who serve as subnational institutional agents in VC firms’ risky decisions. It also enriches the VC literature by adding a novel explanation of early-stage investments.

Keywords: Venture capital; Political uncertainty; Early-stage investment; Governor tenure; G24; L26; M13 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s11187-025-01005-6

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