Why do venture capital firms exist: An institution-based rent-seeking perspective and Chinese evidence

Haitian Lu, Yi Tan, Hong Huang

Research output: Journal article publicationJournal articleAcademic researchpeer-review

32 Citations (Scopus)

Abstract

This paper is a theory development to Amit, Brander, and Zott (1998, Journal of Business Venturing, 13: 441-466) on the nature of venture capital firms. In their paper, the authors argue that venture capital firms exist because they fill a market niche by developing the ability to overcome extreme information asymmetry embedded in high-risk entrepreneurial firms. However, this theory encounters difficulties in explaining a variety of organizational and behavioral divides among venture capitalists in different contexts and over time. In this paper, we apply the institution-based view to reveal the nature of venture capital. We argue that it is the venture capitalists' capability to capture economic rents from the institutional environment that distinguish them from other financial intermediaries. We show the connection of our perspective with the conventional view as well as the usefulness of this theory in explaining the development of the venture capital industry in China.
Original languageEnglish
Pages (from-to)921-936
Number of pages16
JournalAsia Pacific Journal of Management
Volume30
Issue number3
DOIs
Publication statusPublished - 1 Sep 2013

Keywords

  • China
  • Institutions
  • Rent-seeking
  • Strategy
  • Venture capital

ASJC Scopus subject areas

  • Business and International Management
  • Economics, Econometrics and Finance (miscellaneous)
  • Strategy and Management

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