The Effect of Venture Capital on Invested Firms’ Social Responsibility: Evidence from Venture Capital’s Exits

The impact of venture capital firms (VCs) on invested firms’ shareholder benefits is extensively examined in the literature, but few studies consider VCs’ impact on invested firms’ other stakeholder benefits. In this paper, we use the exit of VCs from a 2010 to 2017 sample of Chinese listed firms as a shock in a difference-in-differences analysis to investigate VCs’ influence on invested firms’ corporate social responsibility (CSR). We find that CSR decreases significantly after VCs’ exits, particularly if VCs are not state-owned or are short-term investors in firms. A further analysis shows that VCs’ exits affect firms’ shareholder, creditor, employee, and environmental benefits. VCs improve CSR by alleviating their agency costs and reducing their financial constraints, both of which increase significantly after VCs’ exit from firms. The effect of VCs on CSR also appears to improve corporate performance, implying that this positive effect is consistent with shareholder benefits.