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Uncertainty, venture capital and entrepreneurial enterprise innovation—Evidence from companies listed on China's GEM

Author

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  • Chu, Chien-Chi
  • Li, Yong-Li
  • Li, Shi-Jie
  • Ji, Yun

Abstract

The innovation activities of entrepreneurial enterprises face high uncertainty. While entrepreneurs are experts in this aspect, venture capital (VC) still plays an important role. This study attempts to verify the direct and indirect effects and transmission mechanism through which VC promotes innovation. The interactive relation between VC and uncertainty is examined especially. Using the data of companies listed on China’ s Growth Enterprise Market (GEM), empirical analysis is conducted based on a newly constructed composite weighted innovation index. The results show that VC involvement can significantly improve the innovation level of entrepreneurial enterprises. After multiple rounds of robustness tests and resolving self-selection bias and endogeneity problems using propensity score matching and a treatment effects model, we find the core conclusions remain the same. Further analyses reveal that the greater the degree of uncertainty faced by enterprises, the higher the innovation level. VC can strengthen this positive relation even further. Additionally, VC positively moderates the incentive effect of management shareholdings on innovation, while innovation is indirectly promoted by the partially mediating mechanism of research and development investment. From the perspectives of innovation and uncertainty, this paper deepens our understanding of VC value-added services and provides policy suggestions about how both entrepreneurial and financing parties can cooperate in innovation and create value jointly.

Suggested Citation

  • Chu, Chien-Chi & Li, Yong-Li & Li, Shi-Jie & Ji, Yun, 2021. "Uncertainty, venture capital and entrepreneurial enterprise innovation—Evidence from companies listed on China's GEM," Pacific-Basin Finance Journal, Elsevier, vol. 68(C).
    • Handle: RePEc:eee:pacfin:v:68:y:2021:i:c:s0927538x21000834
    DOI: 10.1016/j.pacfin.2021.101576
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    2. Xie, Hongji & Tian, Cunzhi & Pang, Fangying, 2024. "Venture capital and corporate financialization: Evidence from China," The Quarterly Review of Economics and Finance, Elsevier, vol. 93(C), pages 119-136.
    3. Wang, Yonglian & Wang, Lijun & Pan, Changchun & Hong, Songzhi, 2022. "Economic policy uncertainty and price pass-through effect of exchange rate in China," Pacific-Basin Finance Journal, Elsevier, vol. 75(C).
    4. Su, Jing & Jiang, Jiaoliang & Zhang, Bingbing & Cao, Lijuan, 2023. "Industry salary gap incentive and enterprise innovation," Journal of Asian Economics, Elsevier, vol. 87(C).
    5. Tao, Yongming & Muneeb, Farhan Muhammad & Wanke, Peter Fernandes & Tan, Yong & Yazdi, Amir Karbassi, 2024. "Revisiting the critical success factors of entrepreneurship to promote Chinese agriculture systems: A multi-criteria decision-making approach," Socio-Economic Planning Sciences, Elsevier, vol. 94(C).
    6. Gan, Tian & Zhang, Mingxin & Zhang, Zhiqiang, 2023. "The impact of digital government policy on entrepreneurial activity in China," Economic Analysis and Policy, Elsevier, vol. 79(C), pages 479-496.
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    More about this item

    Keywords

    Uncertainty; Venture capital; Entrepreneurial enterprise innovation; Transmission mechanism;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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