Institutional investor attention and venture capital valuation: evidence from China

Jiangjing Que, Xiuting Qin and Qiuyue Zhang

Applied Economics Letters, 2023, vol. 30, issue 12, 1571-1577

Abstract: This paper analyzes how institutional investor attention affects firm valuations in the venture capital market. Relying on research reports of financial institutions in China, we propose a direct measure of abnormal institutional attention to industries (AIA) after eliminating industry differences and heteroscedasticity. We find that firm valuation is positively associated with institutional investor attention. Our conclusion continues to hold after controlling for selection bias and validating different measures of AIA. In addition, we find a negative relationship between AIA and the performance of VC investments measured by the likelihood of successful exits. Our findings support the notion that an increase in venture valuations is overpricing caused by institutional attention rather than a fundamental premium.

Date: 2023
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DOI: 10.1080/13504851.2022.2071827

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