Venture Capital and Chinese Firms’ Technological Innovation Capability: Effective Evaluation and Mechanism Verification

ABSTRACT

Making the financial industry a solider mainstay of the real economy is of great concern for China in the midst of economic reform. For China, leveraging venture capital (VC) to enhance a firm’s technological innovation capability (TIC) is an important means of actualising its innovation and development strategy, as well as a must-do to realise sustainable development. In this study, firms that went public from 2010 to 2020 on the A-stock market were used as samples to study the effects of VC on TIC and the relevant mechanism based on the difference-in-differences (DID) method. As research findings show, VC can improve TIC through the medium of the internal incentive and external constraint easing effects. The contributory role of VC in TIC varies with firm size, ownership, and industry type. A range of robustness tests, including the PSM, variable substitution, and instrumental variable methods, further strengthened the reliability of the conclusions. This study can enlighten policymakers on how to implement comprehensive resource factor market reform to build a favourable innovation environment that materialises the role of marketisation.