Government Ownership and Venture Capital in China

52 Pages Posted: 23 Feb 2021 Last revised: 19 May 2021

See all articles by Jo-Ann Suchard

Jo-Ann Suchard

UNSW Business School; Financial Research Network (FIRN)

Mark Humphery-Jenner

UNSW Business School; Financial Research Network (FIRN)

Xiaping Cao

SUN YAT-SEN UNIVERSITY

Date Written: April 26, 2021

Abstract

China’s venture capital (VC) market features significant government ownership of VCs. We examine the impact of government-owned VCs on the exit success of entrepreneurial firms. We distinguish between types of government VC according to the degree of government ownership (whole versus partial) and the level of government (central versus provincial). We find that partially government-owned VCs increase the likelihood of a successful exit, especially via initial public offering (IPO) in mainland China, where the IPO process is discretionary and heavily regulated. Entrepreneurial firms backed by partially government-owned VCs also have a higher likelihood of exit at times of policy uncertainty and the timing of exit is less sensitive to prevailing market conditions. Provincial government-owned VCs increase exit likelihood; however, the positive effect decreases when multiple provincial government-owned VCs invest in a firm. Our findings suggest that entrepreneurial firms may benefit from government VC investment, but that complete government control of a VC can lead to inefficiencies.

Keywords: Venture Capital, Government Ownership, China, IPO

JEL Classification: G24, G34, G38

Suggested Citation

Suchard, Jo-Ann and Humphery-Jenner, Mark and Cao, Xiaping, Government Ownership and Venture Capital in China (April 26, 2021). Journal of Banking and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3788725 or http://dx.doi.org/10.2139/ssrn.3788725

Jo-Ann Suchard (Contact Author)

UNSW Business School ( email )

high street
High St
sydney, NSW 2052
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Mark Humphery-Jenner

UNSW Business School ( email )

UNSW Business School
High St
Sydney, NSW 2052
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Xiaping Cao

SUN YAT-SEN UNIVERSITY ( email )

135 Xingang Xi Road
Guangzhou, 510275
China
+862084111154 (Phone)

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