Does venture capital investment enhance corporate innovation? Evidence from Korea

Abstract

We examine whether venture capital (VC) investment enhances corporate innovation in Korea. Using a matched sample of 802 firms from 1998 to 2012, we find that after the first round of VC investment, VC‐backed firms are more innovative than non‐VC‐backed firms. Our results suggest that the positive influence of VC investment largely comes from the ability of VC firms to reduce information asymmetry between investors and ventures: VC funds managed by independent venture capitalists significantly enhance corporate innovation, whereas those managed by governmental venture capitalists do not. Furthermore, this positive influence becomes more pronounced where there is greater information asymmetry. Finally, we show that funds with profit‐based compensation structures are more likely to encourage corporate innovation than those with fee‐based compensation structures.

The effects of organizational learning on innovation and performance of venture capital-backed firms: the moderating effect of syndication

“…While most researchers focus on analyzing how VC financing affects the performance and/or innovation process of firms (e.g. Hua et al, 2016;Lee et al, 2023), our paper takes a distinct approach. We aim to examine the correlation between the potential innovations generated by venture capitalists and the growth and profitability of VC-backed firms.…”