Political ties and VC exits: Evidence from China

- We study the effects of political ties of VC firms on VC exits.
- Political ties facilitate VCs' successful exit via Chinese stock and M&A markets.
- Management-level ties have a more positive effect than ownership-level ties.
- There is no difference between local and central government ties on VC exits.

We examine whether political ties (PTs) benefit VCs in China and find a positive relationship between PTs and successful VC exits. Our findings indicate that PTs are crucial for VCs to exit via Chinese mainland stock markets and M&As. The impact of PTs depends on the nature and compositions of PTs. We document that VCs with management-level PTs enjoy greater success than those with ownership-level PTs, whereas no significant difference between central and local government PTs on VC exits. Our results remain stable after controlling for selection bias, alternative measures for VC exits, and legal and institutional differences across regions.