Abstract
Taking firms listed on the Chinese Growth Enterprise Market (GEM) in 2008–2017 as the sample, this study investigates the impact of venture capital (VC) investment on Chinese firm innovation using propensity score matching and a difference-in-differences (PSM-DID) model. The results show that, overall, firms’ innovation inputs and outputs do not show obvious enhancement due to VC entry, but instead show a strong and then weak inhibitory effect. VCs have heterogeneous impacts on firm innovation; that is, compared to other types of firms, firms with technology-dependent characteristics and firms whose actual controllers are experts in the same industry can effectively mitigate the adverse impact of VC on innovation inputs and gradually promote growth in the quantity and quality of the innovation outputs after the second year of VC entry. This study not only reveals the impact of VC on firm innovation activities in the Chinese capital market but also provides empirical evidence to help improve the financial innovation service system and the use of the capital market to promote innovation in China.
Highlights
Innovation is the core driving force of economic and social development
Has VC played a positive role in supporting firm innovation as policymakers expected in Chinese market? Considering that the institutional environment for the development of VCs in China differs from that in the European and U.S capital markets, the study of the topic above has important theoretical and practical significance for revealing the innovation driving effect of Chinese capital market represented by venture capital and further improving financial innovation service system
Regression Analysis: Impact of VCs on Firm Innovation. e regression results for the impact of VCs on firm innovation are presented in Table 2, where Models 1–3 are fullsample regressions and Models 4–6 are PSM sample regressions
Summary
Innovation is the core driving force of economic and social development. As innovation agents at the micro level, firms show significant positive externalities in their innovation outcomes [1]. Considering that the institutional environment for the development of VCs in China differs from that in the European and U.S capital markets, the study of the topic above has important theoretical and practical significance for revealing the innovation driving effect of Chinese capital market represented by venture capital and further improving financial innovation service system. E institutional environment for the development of VCs in China differs from that in the European and U.S capital markets, so the findings of existing studies are not suitable to explain the practices in China For these considerations, this study selected data on VCs and the innovation activities of Chinese GEM-listed firms from 2008 to 2017 to explore the impact of VCs on firm innovation in the Chinese capital market from the firms’ perspective. We set the antecedent and lagged terms of the policy variables to examine the parallel trend of the model and the lag of the VC effect to improve the reliability of the research findings
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