The impact of air pollution on venture capital: evidence from China

Utilizing a dataset of VC investment from 2005 to 2018, we investigate the relationship between air pollution and venture capital (VC) investment. We find that startups suffering severe air pollution receive less investment from VCs and experience a lower probability of financing from VCs. Our findings are robust to considering endogeneity concerns and various robustness checks. Moreover, air pollution is detrimental to startup innovation ability and entrepreneurial activities through which air pollution negatively affects VC investment. In response, VCs prefer to co-invest with other VCs to mitigate the adverse effect of air pollution. Our paper sheds new light on the impact of air pollution on the private financial markets.