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Are venture capitalist-backed IPOs more innovative? Evidence from an emerging market

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  • Feng, Xunan
  • Chan, Kam C.
  • Lo, Yung Ling

Abstract

This study examines whether venture capital (VC)-backed IPOs are more innovative than otherwise equivalent non-VC-backed IPOs. Using manually collected R&D records from annual reports and patent data from the Chinese State Intellectual Property Office (CSIPO) from 2007 to 2012, we find that VC-backed IPOs have higher R&D expenditures and more patents granted in the three years after IPOs. More specifically, they have more invention, application, and design patents in post-IPO. We use a two-stage instrumental variable, propensity score matching, difference-in-differences approach to mitigate selection biases and find our results to be consistent with our hypothesis. We conclude that VCs can positively influence IPO firms to increase R&D expenditures and innovative output levels in China. In addition, we document that the government ownership adversely affects innovation of VC-backed firms. Policy implications are discussed.

Suggested Citation

  • Feng, Xunan & Chan, Kam C. & Lo, Yung Ling, 2020. "Are venture capitalist-backed IPOs more innovative? Evidence from an emerging market," The North American Journal of Economics and Finance, Elsevier, vol. 51(C).
    • Handle: RePEc:eee:ecofin:v:51:y:2020:i:c:s1062940818300780
    DOI: 10.1016/j.najef.2018.08.022
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    More about this item

    Keywords

    Venture capitalist; IPO; Patent; R&D;
    All these keywords.

    JEL classification:

    • G0 - Financial Economics - - General

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