A Study On The Impact And Its Regional Difference Of Venture Capital On Indigenous Innovation In China

Innovation is an inexhaustible source of power of one economy’s growth and society progress. The features of innovative activities decide that innovative enterprises will encounter financing constraints through traditional financing channels. Venture capital, as a kind of highly-marketized way of investment, can adaptively solve this problem. Experiences from developed countries show that, venture capital has a remarkably positive effect on indigenous innovative activities. As for things in China, the extant literature has not reached a consensus. This paper divides the influence mechanism of venture capital on innovation into two kinds:capital support as’hard’side, non-capital support as ’soft’ side. Based on this I build a theoretical model to discuss the theoretical basis on how venture capital affect innovation. Then According to Kortum and Lerner’s patent production function, I derive an empirical model and respectively adopt a resampling-based bootstrap method to do an empirical study on Chinese aggregate data from 1995 to 2012 and a random-effect, fixed-effect, GMM method to do a panel empirical study on Chinese provincial data from 2009 to 2012, comprehensively investigating the impact and its regional difference of venture capital on indigenous innovation in China from longitudinally and horizontally. The empirical studies show that (1) In China, venture capital doesn’t have a significant impact on indigenous innovation. From longitudinal angle, venture capital hasn’t played a positive role in enterprises’innovation activities; (2) The panel data empirical study also show no strong link between those two, which are very different from all the extant foreign literature and most of the domestic one; (3) The impact may have a regional difference, though. An increase in venture capital can promote the patent production to some degree in eastern areas but has no sign of positive effect on it in the central part and the west of China. This proposes new requirements for venture capital and its supporting role in innovation activities at the present stage. The strategy of independent innovation needs to be carried on and venture capital should be playing a more and more supporting role in it.