The Determinants Of Venture Capital Market Development

This paper analyses the determinants of venture capital market development theoretically and empirically based on the cross-regional panel data sample of China from 2003 to 2009. There are four important factors influencing venture capital in China-government policy, technological opportunities, macroeconomic condition and entrepreneurial environment. The empirical result shows that:the most important factor is government policy, the second one is technological opportunities, the third is macroeconomic condition and the fourth is entrepreneurial environment. At present, government's direct capital support to VC has a "Crowding Effect" to the private capital, but a limited partnership can promote the development of VC as a more effective organization form. Interest rate has a negative relationship with VC funds while the stock market return's effect is positive. The private economy has promoted venture capital market development significantly because of its driving role in the industrialization process of technological achievements. Economic growth, credit market, R&D expenditures growth, IPO, the number of technology professionals and the degree of high-tech industry cluster does not affect VC significantly. Our weak protection of patent results in the negative impact of patent on venture capital.In addition, the endogenous test result of GDP growth shows that, GDP growth has some impact on venture capital, but this effect is not stable, and is very sensitive to other economic variables. The endogenous test result of R&D expenditures growth shows that, China's R&D expenditures are mainly financed internally, and this is the most important reason why the impact of R&D expenditures growth on venture capital is not significant. The robustness check of VC exiting channel indicators shows that the development of SME Board provides a more effective exiting way to VC and promotes the VC market development significantly. Finally some policy suggestions are provided based on these empirical results.