Crowding-in in Venture Capital in China

Abstract

By exploiting a unique policy experiment in China and difference-in-differences methodology, I find that government investments crowd in private investments, with a multiplier of 0.88-0.93. The impact is most pronounced in less developed regions and in the earlier stage of developing the VC sector. Using administrative data, I provide micro-level evidence of the crowding-in effects transmitting in a diminishing pattern through network linkages among limited partners and VC firms, indicating that government investments have a signaling role on private investors.

Keywords: government programs, venture capital, quasi-experiment, crowding-in, social finance, network analysis.

JEL Classification: G24; G28; H76; O38