The impact of hiring local managers on foreign venture capital performance: evidence from China
International Journal of Managerial Finance
ISSN: 1743-9132
Article publication date: 23 February 2022
Issue publication date: 28 March 2023
Abstract
Purpose
This study examines whether recruitment of local managers helps foreign venture capital (VC) firms mitigate the liability of foreignness measured by cultural differences and improves their performance in relationship-based emerging markets such as China.
Design/methodology/approach
From a data set comprising 1,939 Chinese portfolio companies with first-round investments by 282 foreign lead VC firms during 2000–2015, the study tracks the outcome of each investment until the end of 2018 and collects the background information of partners of lead VC firms. A survival analysis using the Cox hazard model is conducted.
Findings
Cultural differences of the foreign VC's home country, when compared to China, positively influence the success of VC firms. Recruitment of local managers reinforces this positive influence. The influence of local manager recruitment is more pronounced for VC firms with politically connected local managers, during politically uncertain periods, in industries supported by the government, in provinces with high government intervention and in VC firms with decentralized decision rights given to local managers.
Originality/value
This research complements the international business literature on the advantages of hiring local managers and identifies the channels through which local managers help foreign VC firms obtain relationship-based resources. The findings also have practical implications for those foreign investors who intend to enter into relationship-based emerging markets.
Keywords
Acknowledgements
The project was funded by the National Natural Science Foundation of China (No: 71672106, 71802123, 71972120 and 72102139); Research Project for Humanities and Social Sciences of the Ministry of Education of the People's Republic of China (No. 18JJD790010); Science and Technology Commission of Shanghai Municipality (No: 21692194000); the Program for Innovative Research team of Shanghai University of Finance and Economics (IRTSHUFE) and 111 Project (No: B18033). The authors gratefully acknowledge helpful comments and suggestions from Xianjie He, Qinglu Jin, Guochang Zhang, Jing Zhou, Yihui Li and the anonymous referees.
Citation
Chen, W., Hou, Q., Tian, G. and Wang, L. (2023), "The impact of hiring local managers on foreign venture capital performance: evidence from China", International Journal of Managerial Finance, Vol. 19 No. 2, pp. 351-384. https://doi.org/10.1108/IJMF-08-2021-0401
Publisher
:Emerald Publishing Limited
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