Keywords: venture capital, innovation, patents, total factor productivity, TFP, China, productivity growth, firm growth potential
Can venture capital trigger innovation? New evidence from China
With the continuing globalisation of the world economy, countries seek to develop and support their venture capital market. Whether venture capital really can trigger innovation or not at all is of interest not only to academia but also to commercial firms, venture capital institutions and government agencies. Based on statistical data collected from the Chinese market, this paper aims to provide material insight on, firstly, whether venture capitals can influence innovation and, if so, by how much; and secondly, whether venture capital leads innovation or whether it is innovation which leads developments in venture capital. The innovation of the sample firms is quantified by the consideration of patent counts and associated productivity growth. The sample firms collected from a group of innovation active industries are selected by a number of discriminative covariates widely cited in the extant literature. The empirical findings demonstrate that venture capital has a positive but limited impact on innovations in the current market. Innovation and productivity growth in particular may also be triggered by the growth potential of firms. We therefore propose a few possible unique factors to explain the underlying mechanism of venture capital in promoting innovation within the context of the Chinese market.