Journal of Law, Finance, and Accounting > Vol 8 > Issue 1

The Effect of Policy Uncertainty on VC Investments Around the World

Lubomir P. Litov, Price College of Business, University of Oklahoma, USA, , Xia (Summer) Liu, Robins School of Business, University of Richmond, USA, , Romora E. Sitorus, Indonesian Ministry of Economic Affairs, Jakarta, Indonesia,
Suggested Citation
Lubomir P. Litov, Xia (Summer) Liu and Romora E. Sitorus (2024), "The Effect of Policy Uncertainty on VC Investments Around the World", Journal of Law, Finance, and Accounting: Vol. 8: No. 1, pp 1-53.

Publication Date: 22 Feb 2024
© 2024 L. P. Litov, X. (S.) Liu and R. E. Sitorus
Financial markets: Financial intermediation,  Corporate finance: Corporate financing,  Entrepreneurship and strategy,  International business: International entrepreneurship, innovation and technology transfer,  International business: International finance and investment,  International business: Emerging markets and economic development,  Uncertainty,  Public policy
JEL Codes: G18, G24
Policy uncertaintyventure capitalentrepreneurial firms


Download article
In this article:
Literature Review and Hypothesis Development 
Data, Sample, and Descriptive Statistics 
Empirical Results 


This study documents a significant negative relationship between policy uncertainty and venture capital (VC) investment in startups across emerging venture capital markets (i.e., outside the United States). The adverse effect of policy uncertainty is exacerbated for younger and early-stage startups. By contrast, the effect is attenuated for startups that have headquarters in cities with a high concentration of global VC investment, in countries with more developed stock markets, or if the VC is led by a bank or a corporate entity. Using close national elections to alleviate endogeneity concerns, we find that the baseline results continue to hold. Furthermore, this study provides evidence that uncertainty increases the number of financing rounds, decreases the fraction of investment amount during the first round, and reduces the likelihood of successful exit through acquisition. Finally, we also find that policy uncertainty reduces the amount of cross-border VC investment.