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Financial development and the geographies of startup cities: evidence from China

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  • Fenghua Pan

    (Beijing Normal University
    Beijing Normal University)

  • Bofei Yang

    (Beijing Normal University
    Beijing Normal University)

Abstract

It has been widely observed that financial support is the key to entrepreneurial activities. The last decade has witnessed tremendous growth of startups and financial markets in China. Despite “mass entrepreneurship and innovation” becoming a national agenda item in China in recent years, few studies have investigated how financial development is related to entrepreneurial activities across cities in such an emerging economy. Drawing on a unique dataset of over 5000 startups in China, this study investigates the geographical characteristics of startup cities and the role of finance in promoting startups across Chinese cities. We find that there exists significant geographical concentration of startups. Beijing, Shanghai, and Shenzhen are the most important startup cities in the country. Regression results show that strong financial supports from both equity financing and credit financing are beneficial to the development of startups at the regional level. Venture capital availability is found to have very positive effects on the entrepreneurial activities in a city. The agglomeration of startups in financial centers and neighboring regions indicate that there exist strong positive externalities of metropolitan cities where the key financial, political, and technology resources are located.

Suggested Citation

  • Fenghua Pan & Bofei Yang, 2019. "Financial development and the geographies of startup cities: evidence from China," Small Business Economics, Springer, vol. 52(3), pages 743-758, March.
    • Handle: RePEc:kap:sbusec:v:52:y:2019:i:3:d:10.1007_s11187-017-9983-2
    DOI: 10.1007/s11187-017-9983-2
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    More about this item

    Keywords

    Startups; Entrepreneurial activity; Financial development; Venture capital; China;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • R1 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics
    • R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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