Propensity scores matching analysis (PSM).

Chinese traditional culture is characterized by "Quan Zi" culture with a "differential order pattern". As a special informal institutional arrangement, "Quan Zi" plays an important role in the capital market. This paper investigates how Venture Capital Quan Zi affects the stock mispricing of invested companies. Using the syndicate investment data of China’s venture capital institutions from 2009 to 2019, this study documents that Venture Capital Quan Zi significantly increases the positive deviations of stock prices of Quan Zi-backed firms but has no obvious influence on the negative deviations, showing an asymmetric effect on stock mispricing. In addition, this effect is dynamic. Stock mispricing significantly increased in the lock-up period and the following year, but then gradually weakened. Mechanism tests suggest that, on the one hand, Venture Capital Quan Zi increases a company’s earnings manipulation, thus raising investors’ expectations to push up stock prices. On the other hand, Venture Capital Quan Zi boosts the stock price through market reaction channels, increasing institutional investors’ shareholdings, positive media coverage and stock liquidity. This paper has high theoretical and applied value to guide the orderly competition of capital and the supervision of institutional investors.</div

VC Quan Zi and asset mispricing (positive)—Adding other control variables.

VC Quan Zi and asset mispricing (positive)—Adding other control variables.</p

VC Quan Zi, positive media coverage and asset mispricing.

VC Quan Zi, positive media coverage and asset mispricing.</p

VC Quan Zi, equity liquidity and asset mispricing.

VC Quan Zi, equity liquidity and asset mispricing.</p

VC Quan Zi and asset mispricing (negative)—Adding other control variables.

VC Quan Zi and asset mispricing (negative)—Adding other control variables.</p

VC Quan Zi and asset mispricing (negative)—Alternative indicators.

VC Quan Zi and asset mispricing (negative)—Alternative indicators.</p

VC Quan Zi and asset mispricing (positive)—Alternative indicators.

VC Quan Zi and asset mispricing (positive)—Alternative indicators.</p

VC Quan Zi, earnings management and asset mispricing.

VC Quan Zi, earnings management and asset mispricing.</p

Descriptive statistics.

This table reports descriptive statistics for all dependent and independent variables used in the paper.</p

VC Quan Zi’s exit time and asset mispricing.

Chinese traditional culture is characterized by "Quan Zi" culture with a "differential order pattern". As a special informal institutional arrangement, "Quan Zi" plays an important role in the capital market. This paper investigates how Venture Capital Quan Zi affects the stock mispricing of invested companies. Using the syndicate investment data of China’s venture capital institutions from 2009 to 2019, this study documents that Venture Capital Quan Zi significantly increases the positive deviations of stock prices of Quan Zi-backed firms but has no obvious influence on the negative deviations, showing an asymmetric effect on stock mispricing. In addition, this effect is dynamic. Stock mispricing significantly increased in the lock-up period and the following year, but then gradually weakened. Mechanism tests suggest that, on the one hand, Venture Capital Quan Zi increases a company’s earnings manipulation, thus raising investors’ expectations to push up stock prices. On the other hand, Venture Capital Quan Zi boosts the stock price through market reaction channels, increasing institutional investors’ shareholdings, positive media coverage and stock liquidity. This paper has high theoretical and applied value to guide the orderly competition of capital and the supervision of institutional investors.</div