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Does Venture Capitalist Quality Affect Corporate Governance?
Wan Wongsunwai,
Northwestern University
ABSTRACT. This paper investigates the effect of venture capitalist (VC) quality on corporate governance of the companies in which they invest, focusing on board characteristics and financial reporting quality. I develop a new metric to measure VC quality, using data that is obtainable for virtually all VC firms. Companies backed by higher quality VCs have larger and more independent boards of directors, increased VC presence on the board, as well as lower abnormal accruals and a lower likelihood of restatement, even after controlling for endogeneity. Overall, the results suggest that higher quality VCs help establish better governance at companies in which they invest.
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