Economic policy uncertainty and firms’ investments in venture capital funds: Evidence from China

The latest business practice in the Chinese venture capital (VC) market involves the active participation of non-financial firms, as limited partners, in VC funds. Exploiting a unique hand-collected dataset from China, we find that economic policy uncertainty is positively related to the propensity of firms to participate in VC funds. Cross-sectional tests show that the positive effect of policy uncertainty on the likelihood of participating in VC funds is enhanced by industrial growth opportunities. Furthermore, economic consequence tests show that participating in VC funds is conducive to improving investment efficiency, increasing innovation performance and promoting product diversification. This study advances our understanding of firms’ investment decisions and the VC industry development amid economic policy uncertainty.