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Do venture capitalists play a monitoring role in an emerging market? Evidence from the pay-performance relationship of Chinese entrepreneurial firms
Faculty of Business - Papers
  • Jerry Cao, Singapore Management University
  • Qigui Liu, University of Wollongong
  • Gary Tian, University of Wollongong
RIS ID
89675
Publication Date
1-1-2014
Disciplines
Publication Details

Cao, J., Liu, Q. & Tian, G. (2014). Do venture capitalists play a monitoring role in an emerging market? Evidence from the pay-performance relationship of Chinese entrepreneurial firms. Pacific-Basin Finance Journal, 29 121-145.

Abstract

This paper investigates venture capitalists' monitoring of managerial behaviour by examining their impact on CEO pay-performance sensitivity across various controlling structures in Chinese firms. We find that the effectiveness of venture capitalists' monitoring depends on different types of agency conflict. In particular, we find that venture capital (VC) monitoring is hampered in firms that experience severe controlling-minority agency problems caused by disproportionate ownership structures. We provide further evidence that VC is more likely to exert close monitoring in firms that have greater managerial agency conflict, and thus require more direct monitoring. However, controlling-minority agency problems have a greater impact on VC monitoring than managerial agency problems. Overall, our study suggests that venture capitalists' monitoring role is hampered in an emerging market where firms have complex ownership structures that contribute to severe agency conflict between controlling and minority shareholders.

Citation Information
Jerry Cao, Qigui Liu and Gary Tian. "Do venture capitalists play a monitoring role in an emerging market? Evidence from the pay-performance relationship of Chinese entrepreneurial firms" (2014)
Available at: http://works.bepress.com/gary-tian/97/