An Empirical Study on Venture Capital and Dividend Policy Practice in China

Since the establishment of the American Research and Development Corporation in 1946, the venture capital industry has rapidly developed. In 1985, the establishment of the China New Technology Venture Capital Corporation marked the beginning of the venture capital industry in China. In this paper, we empirically examine the impact of venture capital investment on the dividend policy of the invested companies using a sample of listed companies from China’s ChiNext market during the period 2014 to 2019. In China’s capital market, it is puzzling to see that companies listed on the main stock exchange usually pay no or low-level dividends, while on the contrary, stocks listed on the Growth and Emerging Market (GEM) have shown a clear pattern of paying more dividends than their peers from other markets or exchanges, i.e., they usually issue normalized dividends and pay a higher-level dividend. Our empirical results show that different types of VC investments have different impacts on the dividend policies of the invested companies. To be specific, we found independent venture capital companies (IVCs) promote the company’s dividend payment and increase the level of dividend payments while corporate venture capital (CVC) inhibits the company’s dividend payment. The joint participation of multiple types of venture capital investment (syndication) also increases the company’s dividend distribution. Our main contributions are two-fold. First, we provide a comprehensive analysis in the field of VC and dividend policy; second, we differentiate VC from the perspective of investment objectives and examine its different impacts on the dividend policies of the invested companies.