Venture Capital And Enterprise Innovation Under The Compression Of Time And Space

The China New Technology Venture Capital Company was established in the year 1985,which marked the emergence of venture capital industry in China.Since then,the venture capital industry has made considerable progress during the past years.It is noteworthy that owing to the information asymmetry and adverse selection problems,venture capital institutions have strong geographical proximity.As the information sensitive institutions,the opening of high-speed railways weakens the significant influence of the original geographical distance on venture capitals‘ decision-making to some certain extent.The practice of many economies such as Japan and Europe demonstrates that the development of transportation infrastructure will substantially decrease the transportation and travel time cost,deepen the openness among different regions.Therefore this will break the constraint of knowledge spillover in geographical spatial scope,then increase the possibility of economic activities agglomeration and ultimately advance the innovation output.The tremendous changes of individuals‘ lifestyle and travel mode choices have been witnessed by the continuous improvement of transportation infrastructure particularly the opening of high-speed railways in China.The boundary between cities has been broken rapidly as well.The high-speed railways facilitate the flow of information and accelerate the circulation of capital,technology and other production factors by shortening the time of business negotiation and decreasing the cost of information communication among the corporations.By means of the constant construction of high-speed railways in China,the compression of time and space effect brought about by the high-speed railways network era causes inhabitants‘ geographical distance steadily enlarge with the stable time distance and relative economic distance.Can the rapid development of high-speed railways enhances the supervision effect of VCs and advances the investee corporations innovation capabilities? It is of importance to understand the impact of venture capital on companies‘ innovation ability and stimulates the development of venture capital industry in detail by investigating into these questions.It is also imperative to enhance the innovation abilities of investees and the innovation power of our country's economy.Nevertheless,the existing literatures have not provided an explicit answer to this question.Based on the quasi-natural experiment of high-speed railways opening in China,this dissertation studies the impact of venture capital on invested enterprises.This dissertation attempts to analyze the impact of VCs on the innovation capability of corporations comprehensively and systematically.The high-speed railways have the effect of compression of time and space,so this work examines its effect on the investment behavior of venture capital institutions.This study also investigates into how the venture capital influences the investees‘ innovation abilities under the circumstances.On the basis of reviewing the existing extensive literature with reference to the relationship between venture capital and invested enterprises,this dissertation analyzes the current development status of venture capital industry in our country and the mechanism of VCs enhancing the invested companies‘ innovation abilities.In the first place,this dissertation analyses the influence of different investment strategies of venture capital on the innovation ability of the invested company comprehensively.Secondly,from the perspective of distinguishing pre-investment screening and post-investment value-added effect of the venture capital,this paper examines the ?screening? effect and ?value-added? effect of venture capital on the invested corporations‘ innovation levels using the difference-in difference and Heckman two stage models.Then,based on the impact of transportation infrastructure development on regional accessibility and economic enhancement theory,the opening of high-speed railways is included in the research framework.This paper analyzes the impact of compression of time and space on the VCs investment behavior.Ultimately,based on the quasi-natural experiment of high-speed railways opening,this dissertation studies the impact of VCs on the innovation capability of invested enterprises in the context of compression of time and space.In the end,this paper proposes several policy recommendations suggestions for venture capital and government on account of the results of empirical analysis.The main conclusions of this dissertation are mainly composed of four aspects,and the conclusions obtained mainly include:Firstly,the number of total patents and invention patents are significantly positively increased by venture capital‘s investment,venture capital phased investment and the total number of rounds of venture capital phased investment.Due to the invention patents can better indicate the quality of innovation,the empirical findings demonstrate that enterprises supported by venture capital pay more attention to the quality of patents.Nevertheless,the strategy of syndication investment by venture capital institutions cannot advance the innovation ability of invested enterprises.The possible explanation is that there are free-rider phenomena in venture capital institutions when they implement the strategy of syndication investment.The more mature companies being invested by VCs,the more unfavorable VCs improve the innovation ability of these corporations.Venture capital investment in the seed stage and start-up stage of enterprises can effectively lessen the financing constraints of start-ups and more probably to enhance their innovation abilities.Secondly,venture capital institutions invest those enterprises with higher innovation abilities and exhibit the pre-investment ?screening? effect clearly.After investment,VCs do not significantly improve the innovation ability of the invested companies.This paper concludes that there are some unobservable factors which influence the selection of the invested enterprises taking into account the sample selection bias.Taking into consideration of the unobservable elements‘ influence,venture capital has enhanced the innovation ability of the invested enterprises remarkably.Thirdly,after the opening of high-speed railways,VCs tend to adopt the strategy of phased investment.Considering the effect of geographical distance,this study finds that venture capital institutions are more inclined to adopt staged investment strategy for the invested companies within 600 kilometers.The impact of high-speed railways on VCs investment strategy is still affected by geographical distance.At the same time,enterprises which are in the seed stage and start-up stage receive more capital from VCs,which will help ease the financing constraints of enterprises during the early stage and stimulate the rapid development of start-up enterprises.This empirical result shows that the high-speed railway can reduce the cost of information collection of venture capital,strengthen the communication with such enterprises to reduce the degree of information asymmetry,and promote the rapid development of start-up enterprises.Venture capital institutions are more inclined to choose syndication investment strategy for state-owned enterprises and strengthen the supervision and administration over state-owned invested enterprises.Fourthly,the number of total patents and invention patents of venture capital-backed enterprises has enhanced considerably after the opening of high-speed railways.The compression of time and space effect has altered the time and space restriction of the original geographical distance on venture capital institutions.Through diminishing the communication cost between venture capital institutions and the invested companies,strengthening the supervision of the invested companies and providing more value-added services to the companies,the innovation quality of the invested companies has been improved.When the distances between venture capital institutions and invested enterprises are within 500 kilometers,the compression of time and space effect caused by the high-speed railways has extensively enlarged the number of total patents and invention patents of venture capital-backed companies,which means that venture capital institutions pay more attention to the quality of the invested companies‘ innovation,rather than the simple increase in the number of patents.In condition of compression of time and space,venture capital institutions can notably improve the innovation level of the invested companies in different regions,and venture capital institutions can observably enhance the innovation ability of the invested enterprises that obtain VCs‘ syndication investment.On account of the above conclusions,the main policy proposals this paper has put forward consist of three aspects.The first one is to further strengthen the guidance of venture capital institutions and promote the rapid development of venture capital industry in China.The empirical results of this dissertation have confirmed the role of venture capital in enhancing the innovation ability of invested enterprises.Especially after the opening of high-speed railways,venture capital investments in enterprises in seed and start-up stage have multiplied considerably,which have a noteworthy function in promoting enterprises‘ invention patents.Yet there are still certain shortcomings concerning venture capital institutions in China.Venture capital institutions tend to invest in latter stage of investees.Government should formulate and implement a series of guiding policies to direct venture capital institutions to multiply their investments in start-up enterprises,and guide venture capital fund to flow to the high-tech industries and innovative enterprises.At the same time,with the continuous opening of high-speed railways,venture capital should be encouraged to strengthen the communication among the invested enterprises in the same industrial chain,and cultivate the long-term innovation ability of enterprises.The second policy proposal is to continuously enhance the healthy development of start-up enterprises.Innovation needs long term support and we should constantly progress the formulation of relevant laws and regulations.These regulations should encourage venture capital to pay attention to the connection of different resources after investment and provide various post-investment value-added services including capital and industry resources for the invested enterprises.In the mean time,we need to form a sustained development environment for the enhancement and facilitation venture capital‘s role and the healthy development of ChiNext.Meanwhile,regulations with regards to strengthen the support for innovation of start-ups,encourage entrepreneurs to introduce and retain talents and support the commercialization of scientific and technological achievements should be put forward.Professional and proficient intermediary management and consultation institutions can be set up to moderate the degree of information asymmetry and transaction costs between venture capital institutions and start-up enterprises.These institutions can enhance their operational efficiency and play an imperative role in promoting the development of start-up companies.At the same time,we should maintain to reinforce the protection of intellectual property rights in our country.Simultaneously,government ought to improve the innovative willingness of start-up enterprises,as a consequence to increase the innovative output of enterprises and then continuously enhance the level of innovation of enterprises.The third policy proposal is to increase the investment in high-speed railways‘ construction and pay attention to the role of high-speed railway in venture capital and knowledge spillover.It is of importance to advance the high-speed railways construction in the central and western regions and the branch lines of high-speed railways,so as to promote the formation of a more intensive network of high-speed railway in China.Venture capital should make full use of the advantages of low travel costs and supervision and management costs brought by high-speed railways,and enhance its own value-added capabilities,so as to promote the development of the invested enterprises.The possible incremental contributions of this dissertation lie in three points.These main innovations of this paper are as follows:In the first place,this research expands the research perspective of venture capital and enterprise innovation.Different from the previous researches which only analyze the geographical proximity of venture capital institutions,this paper studies the impact of venture capital on the innovation ability of the invested enterprises under the background of time and space compression effect when the high-speed railways alter the space and time constraints of geographical distances.The method utilized in the analysis is the quasi-natural experiment with the exogenous variable of high-speed railways‘ opening from the perspective of new economic geography.Thus,this research enriches and expands the research perspective of venture capital and enterprise innovation.In the second place,the studies relevant to compression of time and space and venture capital are extended to the micro level.The existing research with respect to time and space compression and venture capital is limited to the city level in China.These existing papers study the compression of time and space on venture capital institutions‘ spatial preferences and on the amount of venture capital investment and exit success rate of cities along high-speed railways.There is no literature relevant to venture capital and innovation abilities of invested enterprises in the context of time and space compression.This dissertation extends the studies with respect to compression of time and space and venture capital to the enterprise level,and analyses the impact of venture capital on enterprise innovation in the context of time and space compression on the micro level.Thus this study enriches the research as regards to compression of time and space,venture capital and enterprise innovation.The last,the geographic analysis method is included in this study.Few literatures consider the method of geographical analysis to study the related issues.This research draws the scope map of venture capital investments in China,as well as the change diagram of venture capital in the context of time and space compression using the geographic analysis method.