Has venture capital spurred firms′ technological innovation in China?

Has venture capital spurred firms′ technological innovation in China?

Xia Qinghua, Le Yi

Science Research Management ›› 2021, Vol. 42 ›› Issue (7) : 189-199.

PDF(412 KB)

PDF(412 KB)

Science Research Management ›› 2021, Vol. 42 ›› Issue (7) : 189-199.

Has venture capital spurred firms′ technological innovation in China?

Xia Qinghua, Le Yi

Author information +

History +

Abstract

Most high-technology companies have used venture capital funds in order to get started. Venture capital always seems to be closely related to technological progress. Previous research findings of the impact of venture capital on the technological innovation of firms are inconsistent. At present, Chinese Internet giants nurtured by venture capital have been growing rapidly and driving a new wave of innovation and entrepreneurship. However, the U.S. crackdown on ZTE and Huawei has given people a clear understanding of technological innovation performance of Chinese firms. Does venture capital investment stimulate Chinese firm′s technological innovation in the process of building innovation nation? Does its effect mechanism exist?
The existing literatures are lack of typicality and representativeness of research samples, incomplete definition of venture capital institutions, single innovation measure and absence of intermediate role research. It is difficult to make convincing answers to the above questions. In view of this, the paper selects all listed companies on ChiNext as the samples, and investigates how venture capital affects technological innovation of Chinese firms through a perspective of innovation input and outcome with innovation production model.
The data analyzed in this paper come from the two main data sources: CSMAR and initial public offering of stock and listing on ChiNext instruction manual from CNINFO. After final screening, we obtained 708 listed companies on ChiNext from October 30, 2009 to May 30, 2018 as the samples. We evaluate the innovation performance from the perspective of innovation input and outcome. Among them, innovation input is the logarithm of internal R&D expenditure, and innovation outcome is the logarithm of the sum of patent applications and approvals. The patents include invention patents, utility model patents and appearance patent.
We have designed two panel regression models of innovation production. First, we test the model of the presence or absence of venture capital backing on technological innovation. Second, we further test the model of venture capital characteristics on technological innovation. We reach the following conclusions.
Firstly, whether the firm is backed by venture capitalists does not have a significant positive impact on its innovation input and outcome. The performance of technological innovation without venture capitalists backing is similar to that of firms with venture capitalists backing. Because some venture capitalists grandstand firms′ initial public offerings, and the main purpose is to make money quickly through Pre-IPOs. The listing standards reflect focus on profitability and compliance, the lack of requirements for innovation has led some firms and venture capital institutions to concentrate on meeting the requirements for listing, thereby weakening technological innovation capabilities.
Secondly, the number of venture capital institutions has a significant positive impact on innovation input and outcome. The performance targets in the investment contract have an incentive effect, change the business needs into motivations. Employees strive to achieve their goals, improve firm performance in many aspects. The more firm gets venture capital institutions, the more investment contracts be signed. One of the results of target strengthening is that the firm′s technological innovation ability has been improved, and the incremental effect has been maintained in multiple technical characteristic markets.
Thirdly, the shareholding ratio of venture capital institutions has a significant negative influence on innovation input and outcome. By increasing the firm value, the controlling shareholder can exchange less equity for as much risk capital as possible. The controlling shareholder often increases the firm value by improving technological innovation performance and enhancing earnings expectations. The increasing of firm value limits venture capital institutions to increase their shareholdings ratio. This implies that the higher the shareholding ratio of venture capital institutions is, the more it will erode profits of controlling shareholders. The controlling shareholder has no intent to increase the firm value, which has led to a decline in technological innovation performance.
Fourthly, the venture capital investment amount has a significant positive impact only on innovation input, but has no impact on innovation outcome. Due to the investment ceiling, venture capitalists have limited ability to enhance the firm value. Venture capitalists diversify investments to avoid investment risks. Although concentrated investment in a new technology can increase the return on investment, it will hinder diversification of technologies and the new technology may be replaced. Therefore, according to the applicability of technology and market share, venture capitalists will increase R&D investment and reinvest in various technology projects of the firm. Because many domestic firms do not care about the manifestation of innovation results, many innovations are not available in the form of patents. In addition, some high-investment R&D projects ended in failure, and the increased risk of technological transformation led to more sunk costs.
Furthermore, the causal-steps empirical results show that for firms with venture capitalists backing, the mediation effect of R&D investment is statistically significant with 83.11% of the number of venture capital institutions on patents being mediated. The test reveals R&D investment plays a mediating role between the number of venture capital institutions and patents. The innovation outcome of firms is mainly from the R&D investment to produce under the cumulative effect of the number of venture capital institutions.
The above conclusions show that: (1) Venture capital is not a decisive factor for technology innovation. (2) The incentive effect of venture capital on technological innovation is better than the capital effect. (3) Venture capital has promotion effect while at the same time also inhibition effect on technological innovation.
This paper has the following enlightenment for venture capitalists, firm founders and policy makers. First, venture capitalists not only finance but also advise start-up entrepreneurs and thereby add value to new firms. They should follow the rules of long-term value investing. Second, firms should continue to invest in R&D and transform tacit knowledge into explicit knowledge, which will make firms gain a competitive advantage in business. For firms wishing to get venture capital funding, they should focus on the multiple impacts of venture capital characteristics on technological innovation. Third, the government should shift from ‘encouraging development’ to ‘regulating management’ for the development of the venture capital industry. The listing standards should focus on technological innovation capabilities and the growth of firms, and compromise on the level of firm profitability. Withdrawal of venture capital after listing must be strictly restricted based on market liquidity.

Key words

venture capital / technological innovation / R&D investment / patent / ChiNext

Cite this article

Download Citations

Xia Qinghua, Le Yi. Has venture capital spurred firms′ technological innovation in China?[J]. Science Research Management. 2021, 42(7): 189-199

References

[1] KORTUM S,LERNER J.Assessing the contribution of venture capital to innovation[J].The RAND Journal of Economics,2000,31(4):674-692.

[2] ZHANG S,DONG L.Does VC spur regional innovation?[J].Open Journal of Social Sciences,2016,4:122-130.

[3] 程昆,刘仁和,刘英.风险投资对我国技术创新的作用研究[J].经济问题探索,2006(10):17-22.

CHENG Kun,LIU Renhe,LIU Ying.Research on the role of venture capital in China's technological innovation[J].Inquiry into Economic Issues,2006(10):17-22.

[4] BHIDé A.The origins and evolution of new businesses[M].Oxford University Press,1999.

[5] GILBERT R J,NEWBERY D M G.Preemptive patenting and the persistence of monopoly[J].American Economic Review,2001,74(3):514-526.

[6] 陈见丽.风险投资能促进高新技术企业的技术创新吗?——基于中国创业板上市公司的经验证据[J].经济管理,2011,33(2):71-77.

CHEN Jianli.Did venture capital improve the technology innovations of hi-tech enterprises? ——A empirical analysis based on the GEM of China[J].Business Management Journal,2011,33(2):71-77.

[7] JENG L A,WELLS P C.The determinants of venture capital funding:Evidence across countries[J].Journal of Corporate Finance,2000,6(3):241-289.

[8] CASELLI S,GATTI S,PERRINI F.Are venture capitalists a catalyst for innovation[J].European Financial Management,2009,15(1):92-111.

[9] HIRUKAWA M,UEDA M.Venture capital and industrial innovation:Which is first?[J].Pacific Economic Review,2011,16(4):421-465.

[10] KEUSCHNIGG C,NIELSEN S B.Start-ups,venture capitalists,and the capital gains tax[J].Journal of Public Economics,2002,88(5):1011-1042.

[11] 吕炜.论风险投资机制的技术创新原理[J].经济研究,2002(2):51-56.

LYU Wei.Technological innovation principle of venture capital mechanism[J].Economic Research Journal,2002(2):51-56.

[12] 马嫣然,蔡建峰,王淼.风险投资背景、持股比例对初创企业技术创新产出的影响——研发投入的中介效应[J].科技进步与对策,2018,35(15):1-8.

MA Yanran,CAI Jianfeng,WANG Miao.The Impact of venture capital’s background, shareholding ratio on start-ups’ innovation output – Based on the intermediary effect of R&D[J].Science & Technology Progress and Policy,2018,35(15):1-8.

[13] GOMPERS P,LERNER J.Short-term America revisited? Boom and bust in the venture capital industry and the impact on innovation[J].Innovation Policy and the Economy,2003,3:1-27.

[14] 苟燕楠,董静.风险投资背景对企业技术创新的影响研究[J].科研管理,2014,35(2):35-42.

GOU Yannan,DONG Jing.Influence of venture capital background on firms’ technological innovation[J].Science Research Management,2014,35(2):35-42.

[15] 买忆媛,李江涛,熊婵.风险投资与天使投资对创业企业创新活动的影响[J].研究与发展管理,2012,24(2):79-84.

MAI Yiyuan,LI Jiangtao,XIONG Chan.The impact of venture capital and angel investment on innovative activity of venture enterprises[J].R&D Management,2012,24(2):79-84.

[16] BRANDER J A,AMIT R,ANTWEILER W.Venture-capital syndication:Improved venture selection vs. The value-added hypothesis[J].Journal of Economics & Management Strategy,2010,11(3):423-452.

[17] 林晓,徐伟,杨凡.风险投资与创新的时空关系和相互作用研究[J].科研管理,2019,40(7):119-130.

LIN Xiao,XU Wei,YANG Fan.The spatial-temporal relationship and interaction between venture capital and innovation[J].Science Research Management,2019,40(7):119-130.

[18] LA Porta R,LOPEZ-De-Silanes F,SHLEIFER A.Corporate ownership around the world[J].Journal of Finance,1999,54(2):471-517.

[19] FRANCIS J,SMITH A.Agency costs and innovation some empirical evidence[J].Journal of Accounting and Economics,1995,19(2):383-409.

[20] HOLMSTROM B.Agency costs and innovation[J].Journal of Economic Behavior and Organization,1989,12:305-327.

[21] BYGRAVE W,HAY M,NG E,REYNOLDS P.Executive forum:A study of informal investing in 29 nations composing the global entrepreneurship monitor[J].Venture Capital, 2003,5(2):101-116.

[22] CROCE A,MARTí J,MURTINU S.The impact of venture capital on the productivity growth of European entrepreneurial firms:‘screening’ or ‘value added’ effect?[J].Journal of Business Venturing,2013,28(4):489-510.

[23] 宁宇新,景琳.风险投资对科技型上市公司技术创新能力影响研究[J].财会月刊,2017(3):37-41.

NING Yuxin,JING Lin.Research on the impact of venture capital on the technological innovation ability of technical listed companies[J].Finance and Accounting Monthly,2017(3):37-41.

[24] 杨大楷,邵同尧.风险投资中的创新度量：指标、缺陷及最新进展[J].经济问题探索,2010(7):62-66.

YANG Dakai,SHAO Tongyao.Innovation measurement in venture capital:Indicators, defects and latest progress[J].Inquiry into Economic Issues,2010(7):62-66.

[25] 吴超鹏,吴世农,程静雅,王璐.风险投资对上市公司投融资行为影响的实证研究[J].经济研究,2012,47(1):105-119,160.

WU Chaopeng,WU Shinong,CHENG Jingya,WANG Lu.The role of venture capital in the investment and financing behavior of listed companies:Evidence from China[J].Economic Research Journal,2012,47(1):105-119,160.

[26] 金永红,蒋宇思,奚玉芹.风险投资参与、创新投入与企业价值增值[J].科研管理,2016,37(9):59-67.

JIN Yonghong,JIANG Yusi,XI Yuqin.Venture capital,innovation investment and corporate value–adding[J].Science Research Management,2016,37(9):59-67.

[27] PITT M M,LEE L F.The measurement and sources of technical inefficiency in the Indonesian weaving industry[J].Journal of Development Economics,1981,9(1):43-64.

[28] 周黎安,张维迎,顾全林,汪淼军.企业生产率的代际效应和年龄效应[J].经济学(季刊),2007(4):1297-1318.

ZHOU Li'an,ZHANG Weiying,GU Quanlin,WANG Miaojun.The effects of firm age and cohort on productivity[J].China Economic Quarterly,2007(4):1297-1318.

[29] BIESEBROECK J V.Robustness of productivity estimates[J].Journal of Industrial Economics,2010,55(3):529-569.

[30] FERNANDES A M.Firm productivity in Bangladesh manufacturing industries[J].World Development,2008,36(10):1725-1744.

[31] HITT M A,HOSKISSION R E,IRELAND R D, HARRISON J S.Are acquisitions a poison pill for innovation?[J].Executive,1991,5(5):22-34.

[32] 何光辉,杨咸月.融资约束对企业生产率的影响——基于系统GMM方法的国企与民企差异检验[J].数量经济技术经济研究,2012,29(5):19-35.

HE Guanghui,YANG Xianyue.The effect of financial constraints on productivity in China[J].The Journal of Quantitative & Technical Economics,2012,29(5):19-35.

[33] GRILICHES Z.Productivity puzzles and R&D:Another nonexplanation[J].Journal of Economic Perspectives,1988,2(4):9-21.

[34] SEQUEIRA T N.Firms’ leverage and labour productivity:A quantile approach in Portuguese firms[J].Applied Economics,2007,39(14):1783-1788.

[35] 杨勇,袁卓.技术创新与新创企业生产率——来自VC/PE支持企业的证据[J].管理工程学报,2014,28(1):56-64.

YANG Yong,YUAN Zhuo.Technological innovation and firm productivity:Evidence from VC/PE backed firms[J].Journal of Industrial Engineering and Engineering Management,2014,28(1):56-64.

[36] 陈治,张所地.中国风险投资分布现状及发展研究[J].未来与发展,2010(3):11-15.

CHEN Zhi,ZHANG Suodi.The research on Gini coefficient of Chinese venture capital[J].Future and Development,2010(3):11-15.

[37] KAPLAN S N,Strömberg P.Financial contracting theory meets the real world:An empirical analysis of venture capital contracts[J].The Review of economic studies, 2003,70(2):281-315.

[38] Popov A,Roosenboom P.Venture capital and patented innovation:Evidence from Europe[J].Economic Policy,2012,27(71):447-482.

[39] Bertoni F,Tykvová.Which form of venture capital is most supportive of innovation?[R].ZEW-Centre for European Economic Research Discussion,Paper No.12-018,2012.

[40] Dushnitsky G,Lenox M J.When do incumbents learn from entrepreneurial ventures?Corporate venture capital and investing firm innovation rates[J].Research Policy,2005,34(5):615-639.

[41] 逄淑媛,陈徳智.专利与研发经费徳相关性研究——基于全球研发顶尖公司10年面板数据的研究[J].科学学研究,2009,27(10):1500-1505.

Pang Shuyuan,Chen Dezhi.A study on the relationship between R&D inputs and patents:panel data analysis of top global companies by R&D investment[J].Studies in Science of Science,2009,27(10):1500-1505.

[42] Grant R M.Prospering in dynamically-competitive environments:Organizational capability as knowledge integration[J].Organization Science,1996,7(4):375-387.

[43] Baron R M,Kenny D A.Moderator-Mediator variables distinction in social psychological research:Conceptual, strategic, and statistical considerations[J].Journal of Personality and Social Psychology,1986,51(6):1173-1182.

[44] Sobel M E.Some new results on indirect effects and their standard errors in covariance structure models[J].Sociological Methodology,1986,16:159-186.

[45] Wen Z L,Marsh H W,Hau K T.Structural equation models of latent interactions:An appropriate standardized solution and its scale-free properties[J].Structural Equation Modeling A Multidisciplinary Journal, 2010,17(1):1-22.

[46] Fritz M S,Mackinnon D P.Required sample size to detect the mediated effect[J].Psychological Science,2007,18(3):233-239.

[47] Mackinnon D P,Lockwood C M,Williams J.Confidence limits for the indirect effect:Distribution of the product and resampling methods[J].Multivariate Behavioral Research,2004,39(1):99-128.

PDF(412 KB)

Accesses

Citation

Detail

Sections

Recommended

/

〈

〉