Does Corruption Impede Venture Capital Investment? Evidence from the United States

Exploiting the local political corruption data, we find that state-level corruption is negatively related to the venture capitals’ (VC) investment strategy. Specifically, our findings provide evidence that entrepreneurial companies experience a reduction in terms of total VC investment amount, average investment amount across VCs, the quantity of VCs involving into making investment and likelihood of receiving VC investment. We further document that companies with a higher dependent on the government spending contract are subject to a larger corruption effect on the VCs’ investment. In addition, we find an older company age and stricter state-level anti-takeover regulation mitigates the impediment effect on the VCs’ investment. Overall, our results support the idea that political corruption disrupts venture capitals’ investment in the United States.