From the perspective of resource-based theory, agency theory and signal transmission theory, this paper examines the impact of venture capital on the deviant strategy of enterprises by studying the data of GEM listed companies from 2009 to 2016. The study finds that there is a smaller deviant strategy in companies supported by venture capital than not supported. Through the further analysis of venture capital, this paper finds that the impact of specific characteristics of venture capital on corporate deviant strategy is more significant: private and state-owned background characteristics of venture capital, compared with foreign investment background characteristics of venture capital, the companies supported by the former two own smaller deviant strategy; the enterprise supported by venture capital of alliance investment characteristics, phased investment characteristics, late entry into the enterprise characteristics owned smaller deviant strategy.
The national strategy leads economic and political culture to take off, the industry strategy has arisen a generation of industrial revolution, and the enterprise strategy points forward to make it invincible. Enterprise strategy refers to a series of conventions and actions taken by enterprises to develop core competitiveness and gain competitive advantage [
Venture Capital referred to as VC, the broad sense of venture capital refers to all with high risk, high potential return on investment; narrow sense of venture capital is based on high technology, production and operation of technology- intensive products investment. The existing literature shows that venture capital has a pivotal role in the growth of start-ups. Venture capital institutions can not only ease the business’ capital “bottleneck” and constraints [
Relying on venture capital to macroeconomic policy control and industry development and forward-looking insight and other advantages [
Venture capital can guide start-ups to choose the correct strategic plan and effectively control the deviant strategy. Venture capital institutions can provide value-added services and supervisory control to start-up enterprises based on their own experience and industry expertise, thus affecting the strategic choice and implementation of entrepreneurial enterprises. Gorman and Sahlman (1989) analyzed the survey data of 49 start-ups, showing that venture capital firms spend 80 hours a year on site guidance and 30-hour telephone visits for start-ups. In addition, VC also provides value-added services such as financial support, strategic consulting and personnel recruitment for start-ups, and comprehensively guides the formulation and implementation of the strategies of start-ups. Barry et al. (1990), in discussing the role of venture capital in the value creation of listed companies, found that venture capital would intervene in the board of directors of entrepreneurial enterprises, participate in internal business decision-making and other activities to achieve the supervision and management of enterprises, thus affecting the start-up enterprises strategic choice. On this basis, a large number of scholars believe that venture capital can bring the characteristics of value-added services and professional corporate governance [
Venture capital to guide enterprises to develop a strategy to control the deviant strategy will not be too large, the starting point is: based on their own investment experience and industry development prospects to ensure that the strategic positioning of start-ups can support high growth, avoid uncertainty, thus achieving efficient investment performance. Therefore, venture capital institutions in the enterprise, will be based on changes in market environment and strategic elements, and actively play a guiding and nurturing functions to help entrepreneurs to develop appropriate strategies to effectively improve the effectiveness of corporate deviant strategy, and control the deviant strategy to the industries’ low level.
Based on the theory of resource basic theory, agency theory and signal transmission theory, this paper argues that venture capital institutions control the deviant strategy of start-up enterprises through three mechanisms, namely value - added service provision mechanism, supervision and management mechanism and signal transmission mechanism.
According to the theoretical logic of the resource-based view, the sustainable competitive advantage of the firm is derived from the heterogeneity and immobility resources that it possesses, and this resource has value, rareness, imperfect imitability and substitutability [
According to the agency theory, after the formation of the principal-agent relationship, due to the existence of information asymmetry and the difference between the two sides’ demand and the target, the information superiority will choose the behavior and strategy based on the maximization of its own effect, which may lead to moral hazard and adverse selection. After venture capital involved in starting a business, a kind of principal-agent relationship is formed. On the one hand, entrepreneurs may use the information advantage to develop strategic decisions that are conducive to maximizing their own interests. On the other hand, the concept and decision-making ability of entrepreneurs may restrict the choice of the correct strategic direction, and thus seriously affect the growth of enterprises and venture capital institutions interests. Through close monitoring and incentives, venture capital firms can mitigate this agency risk to a certain extent [
According to the theory of signal transmission, when there is information asymmetry, individuals with information superiority in the market will pass information to the individual of information disadvantage through signal transmission mechanism, so as to realize effective market equilibrium [
In summary, venture capital has achieved its impact on deviant strategy in the screening and counseling of enterprises, thus we put forward the hypothesis H1:
H1: Venture-backed firms have less deviant strategy than no venture-backed firms.
Because of venture capitals’ different qualifications, they provide value-added services to enterprises, play a supervisory role and the role of information transmission is not the same, so its impact on the degree of deviant strategy is not the same, which we propose H2:
H2: Venture capital characteristics affect the deviant strategy of enterprises.
What kind of venture capital plays a larger role in controlling corporate strategy? In this paper, the characteristics of venture capital are divided into two categories, one is its own attribute characteristics, and the other is its investment period characteristics.
According to the fund background, venture capital can be divided into government background venture capital, private background venture capital and foreign background. First, they can make better use of the links between key players such as suppliers, customers and partners in the process of value-added service provision, and reduce the deviant strategy in the business strategy. Second, the government background and private background of the venture to participate in corporate strategic decision-making will be more inclined to determine the risk and benefit based on industry standards, which strictly control the expansion of deviant strategy. Finally, they are more aware of the domestic capital market and the domestic industry situation, and they can better interact with the capital market and the entire industry in the information transmission, so as to know ourselves, to prevent extreme strategic decisions. On the other hand, foreign- funded enterprises have more diversified resources, and the reference standard is more likely to be their own national standards. Therefore, it is more prone to extreme phenomena in the process of participating in the strategic decision making of foreign-funded enterprises, forming a larger strategic difference. So we propose hypothesis H2a:
H2a: Companies backed by venture capital of private and state-owned background, compared with companies backed by venture capital of foreign investment background, the former have less strategic difference.
In this paper, two or more venture capital investments in the same enterprise are called union investment. These institutions often come from different industry sectors and have different resource and capacity structures. First of all, From a resource perspective, alliance venture capital institutions tend to come from different industries and have different structures of resources and capabilities. They provide a variety of complementary resources and capabilities when providing value-added to start-ups, and conclude such Investment alliances help start-ups gain access to critical resources and capabilities to get to new markets faster [
H2b: Companies backed by Union venture capital has less deviant strategy.
From the perspective of value-added services, late-stage venture capital investment has a more skilled listing counseling experience, so it can guide companies in strict accordance with the listing standards, and recommend the resources and network that help enterprises to list, and control the deviant strategy of enterprises within a reasonable range. From the point of view of supervisory management, The CSRC has very high requirements on the compliance and performance of start-ups in the first three years of listing. Venture capitalists now need to provide more stringent compliance guidance and strategic guidance. In summary, we propose that H2c:
H2c: Companies backed by late-stage venture capital have less deviant strategy.
From a regulatory perspective, as the phased injection of capital allows venture capitalists having sufficient time to gather relevant information about the business and to monitor the firm’s growth after the first phase of investment, the business outlook can be effectively reassessed. For any revaluation, VCs have the right to give up or continue to hold the project. If VCs choose to invest additional funds, it means that the indicators of the enterprise meet the requirements, the strategy differences are low, the performance is stable, and the listing prospect is good. Therefore, the phased investment is an important way to reduce the cost of principal-agent and reduce the risk of investment [
H2d: Companies backed by phased investment venture capital have less deviant strategy.
Based on the researches of domestic and foreign scholars, combined with the unique economic environment and system background of China, this paper takes the 2009-2016 data of China GEM listed companies as sample, which obtains a total of 2628 observations. This paper focuses on venture capital and its characteristics’ impact on corporate strategy differences. The data for venture capital comes from “Prospectus for Listed Companies”, Wind Database, China Venture website and Global Enterprise Library website. R & D investment data from the Wind database, other financial data from the CSMAR database. This article uses stata12 for data processing.
Model 1:
d s = β 0 + β 1 V C + β 2 h i g h t e c h + β 3 b s h a r e + β 4 b o a r d s + β 5 R O A + β 6 L E V + β 7 g r o w t h + β 8 s i z e + β 9 i n d u s t r y + β 10 y e a r + ε
Model 1 examines the impact of risk-free investment support on corporate strategy differences.
Model 2:
d s = β 0 + β 1 v c n a t u r e 0 + β 2 v c n a t u r e 1 + β 3 u n i t e + β 4 h i g h t e c h + β 5 b s h a r e + β 6 b o a r d s + β 7 R O A + β 8 g r o w t h + β 9 L E V + β 10 s i z e + β 11 i n d u s t r y + β 12 y e a r + ε
Model 2 is used to examine the impact of venture capital with different attribute characteristics on corporate deviant strategy.
Model 3:
d s = β 0 + β 1 i n v e s t a g e + β 2 i f s t a g e + β 3 h i g h t e c h + β 4 b s h a r e + β 5 b o a r d s + β 6 R O A + β 7 L E V + β 8 g r o w t h + β 9 s i z e + β 10 i n d u s t r y + β 11 y e a r + ε
Model 3 is used to examine the impact of venture capital investments with different investment characteristics on corporate strategy differences.
1) Deviant strategy
Deviant strategy refers to the extent to which corporate strategy deviates from industry concentration or mainstream trends. This paper draws on the practices of scholars such as Finkelstein and Hambrick (1990) [
2) The confirmation of venture capital institutions
First, if the words “venture capital” and “venture capital investment” appear in the names of the shareholders of the company, check its main business, if it carries out “venture capital” and “venture capital” activities, such shareholders will be identified as venture capital; Second, if the above name does not appear in the name of the shareholder, it will be judged whether it is a venture capital or not according to the statistics of VC/PE in the Wind database; Third, if the company Wind database does not count the shareholders, then search prospectus and equity changes in its shareholders in the introduction, if its main business is “venture capital business”, then identify it as venture capital; Fourthly, for the remaining shareholders of the Company, check its main businesses through the China Venture website and the global corporate library website, and if the main business of the Company is to conduct “venture capital business”, they are deemed as venture capital.
For two or more VCs in an enterprise, we determine the main VCs for regression analysis according to the measurement method of Dang [
3) Attribute characteristics of venture capital
a) Background: virtual variables, the foreign capital background is assigned 0, the state-owned background is assigned 1, and the private background is assigned to 2. b) Union investment: virtual variables, if two or more VCs invest in the same enterprise on the same day to take 1, otherwise to take 0.
4) Investment characteristics of venture capital
a) Whether the phased: dummy variables, to measure whether the venture capital investment in stages, is to take 1, not to 0.
b) Entry period: entry period = (year of venture capital entry − year of establishment)/(year of IPO of enterprise − year of establishment), the larger the value, the later the venture capital enters the enterprise.
5) Control variables
The control variables refer to the literature on the study of deviant strategy and we control equity checks and balances, board structure, profitability, growth, size, gearing, industry type, and annual dummy variables. According to the method of China Securities 2012 industry classification and the classification of high-tech industries by Luo [
The above variable definitions are also shown in
Variable | Code | Variable definition (explanation) | |
---|---|---|---|
Dependent Variable | |||
Enterprise strategic difference | DS | The deviation degree between enterprise strategy and industry concentration or mainstream trend. It is continuous variable, and the greater the value is, the greater the difference is. | |
Independent Variable | |||
Whether venture capital involvement in business | VC | Whether there is a venture capital investment when the enterprise IPO, is to take 1, not to take 0 | |
Background of venture capital | VCnature | Venture capitalization for foreign background assignment 0, for the state-owned background assignment 1, private background assignment for 2 | |
Venture capital alliance investment | Unite | When two or more venture capitalists invest the same enterprise on the same day, take 1, otherwise 0 | |
Venture capital investment stage | Investage | (Venture capital into the year - the year the company was founded)/(the year of the IPO − the year the business was founded), the larger the later into the business | |
Whether venture capital invested in stages | Ifstage | Whether venture capital investment is phased, is to take 1, no 0 | |
Controlled Variable | |||
Enterprise characteristic | Whether high-tech industry | Hightech | According to the method of China Securities 2012 industry classification and the classification of high-tech industries by Luo Ting et al. (2009), Li Li (2015) and Dong Jing (2017), codes C26, C27, C39, C40 and I65 are high Technology industry. |
Equity balance | Bshare | The sum of the largest shareholder of the company holding shares/second to ten major shareholders | |
Board structure | boards | Proportion of independent directors in the board of directors | |
Enterprise size | Size | The book value of assets at the end of the year is taken as logarithm | |
Profitability | ROA | Net interest rate of total assets = net profit/total assets | |
debt paying ability | Lev | Asset liability ratio = Total Liabilities/total assets | |
development capacity | Growth | Current year main business income/last year main business income −1 | |
Year | Year | Dummy variables for 2009-2016 | |
Industry | Industry | The manufacturing industry is subdivided into one digit after the China Securities Regulatory Commission’s industry-coded letters. Other industries are no longer subdivided. A total of 27 industry dummy variables were formed. |
Variable | N | Mean | Max | Min | p50 | sd |
---|---|---|---|---|---|---|
Ds | 2628 | 0.69947 | 3.421 | 0.077697 | 0.6233 | 0.34361 |
VC | 2628 | 0.48782 | 1 | 0 | 0 | 0.49995 |
vcnature | 1188 | 1.55135 | 2 | 0 | 2 | 0.60597 |
unite | 1282 | 0.27925 | 1 | 0 | 0 | 0.44881 |
investage | 1170 | 0.68467 | 0.99026 | 0 | 0.74615 | 0.22291 |
ifstage | 1282 | 0.071763 | 1 | 0 | 0 | 0.2582 |
hightech | 2628 | 0.4433 | 1 | 0 | 0 | 0.49687 |
boards | 2628 | 0.37927 | 0.6 | 0.25 | 0.36364 | 0.055163 |
bshare | 2628 | 1.3986 | 18.41 | 0.17508 | 0.97368 | 1.3747 |
size | 2628 | 20.987 | 24.447 | 18.679 | 20.897 | 0.75088 |
roa | 2628 | 0.05756 | 0.46741 | −0.6282 | 0.054846 | 0.050151 |
growth | 2628 | 0.27442 | 6.6845 | −0.79087 | 0.20473 | 0.44168 |
lev | 2628 | 0.25455 | 0.84253 | 0.011054 | 0.22537 | 0.15846 |
with a significant difference of 10%. (Off-balance sheet data, mean T-test) 4) The proportion of enterprises with foreign-funded venture capital background was 6% (71 observations), that of state-owned venture capital enterprises was 32.9% (391 observations), and that of private ventures was 61.1% (726 observations). 5) The ratio of two or more venture capital shareholders to affiliate investment is 27.9%. 6) The invest stage of venture capital is 0.68 at an average, that is, venture capital get into the enterprise at middle and late stage. 7) Venture capital for phased investment accounted for 7%.
According to the empirical results of Model 1 in
(1) | (2) | (3) | |
---|---|---|---|
ds | ds | ds | |
VC | −0.0316** | ||
(0.0185) | |||
Vcnature1 | −0.1968*** | ||
(0.0000) | |||
Vcnature2 | −0.2439*** | ||
(0.0000) | |||
unite | −0.0449* | ||
(0.0672) | |||
investage | −0.2428*** | ||
(0.0000) | |||
ifstage | −0.1186*** | ||
(0.0043) | |||
hightech | 0.1243*** | 0.2142*** | 0.2190*** |
(0.0000) | (0.0000) | (0.0000) | |
boards | −0.2722** | −0.4985** | −0.3314 |
(0.0276) | (0.0150) | (0.1141) | |
bshare | −0.0088* | −0.0126* | −0.0186** |
(0.0745) | (0.0860) | (0.0269) | |
size | 0.0388*** | 0.0578*** | 0.0611*** |
(0.0003) | (0.0006) | (0.0004) | |
roa | −0.7804*** | −0.7440*** | −0.7483*** |
(0.0000) | (0.0017) | (0.0017) | |
growth | −0.0551*** | −0.0996*** | −0.0792*** |
(0.0006) | (0.0002) | (0.0026) | |
lev | 0.2028*** | 0.1355* | 0.0936 |
(0.0000) | (0.0809) | (0.2375) | |
industry | Control | ||
year | Control | ||
_cons | 0.1811 | −0.0095 | −0.1755 |
(0.4349) | (0.9791) | (0.6413) | |
N | 2628 | 1188 | 1170 |
adj. R-sq | 0.050 | 0.103 | 0.086 |
p-values in parentheses = “*p < 0.1, **p < 0.05, ***p < 0.01”
deviant strategy supported by the former two compared with the venture capital with foreign investment background, which confirms the hypothesis 2a-1 proposed in this paper. Venture capital with private and state-owned backgrounds can better control corporate deviant strategy, which reflects the superiority of value-added services, supervision and management and signal transmission. Union venture capital has significant negative correlation with corporate deviant strategy, which verifies the proposed Hypothesis 2a-2, that enterprises supported by union investment can better exert the advantages of group decision-making and avoid major deviations in the process of strategic decision-making so as to control their deviant strategy. According to the empirical results of Model 3, the venture capital that enters the business later is significantly and negatively related to the strategic difference of its supporting enterprises, which verifies H2b-1, that is, the venture capital into the enterprise in the later period, provides a more professional listing experience and compliance guidance so as to control corporate strategy more effectively. The venture capital of phased investment is significantly and negatively related to the strategic difference of its supporting enterprises, which verifies the hypothesis H2b-2, which means that additional investment is more conducive to the supervision and management of enterprises, and can control the deviant strategy more effectively.
From the perspective of resource-based theory, agency theory and signal transmission theory, this paper examines the impact of venture capital on the deviant strategy of enterprises by studying the data of GEM listed companies from 2009 to 2016. The study finds that there is a smaller deviant strategy in companies supported by venture capital than not supported, which shows that venture capital helps to curb deviant strategy and control deviant strategy to a lower level. Through the further analysis of venture capital, this paper finds that the venture capital with specific characteristics has more significant impact on the strategic difference of enterprises: private and state-owned background characteristics of venture capital, compared with foreign investment background characteristics of venture capital, the companies supported by the former two own smaller deviant strategy. The enterprise supported by the venture capital of alliance investment characteristics, the phased investment characteristics, late entry into the enterprise characteristics owned smaller deviant strategy.
The conclusions of the above research have the following meanings: Firstly, it helps enterprises to raise awareness of whether venture capital should be introduced, what kind of venture capital should be introduced, and how to introduce venture capital so as to prevent and reduce deviant strategy, and to prevent performance instability caused by too much deviant strategy; Second, it helps capital markets recognize the deviant strategy brought by venture capitalists as an external investor, and help the capital market choose the right investment.
For start-ups, if they do not know how to plan their future strategic direction in complicated market environment or can not judge which strategies can help them to gain the forefront and steady development, to gain competitive advantages and sustainable management advantages in the industry, then it can choose to introduce venture capital. In the screening of venture capital investment, the start-ups can focus on the introduction of private-owned or state-owned venture capital investment, alliance venture capital investment, phased venture capital investment or late entry venture capital investment. For investors, if he prefers a stable return, he can choose to invest in the companies which backed by private-owned or state-owned background venture capital, alliance venture capital, phased venture capital or late entry venture capital.
The deficiencies of this paper are as follows: 1) The impact of deviant strategy on the economic consequences other than corporate performance has not been ascertained; 2) In addition to venture capital, the impact of governance structures within enterprises on deviant strategy remains to be studied.
Zhang, H.H. (2018) The Impact of Venture Capital on GEM Companies’ Deviant Strategy. Open Journal of Accounting, 7, 25-41. https://doi.org/10.4236/ojacct.2018.71003