Regional Integration, Venture Capital and Firm-based Innovation

Abstract

Venture capital is a source of living water for enterprises' basic innovation. In this paper, we select investment events in East and Central China from 2005-2019, and use the Yangtze River Delta integration as a natural experiment to test the effect of integration policies on the promotion of basic innovation by VCs by applying a multi-period DID model. The study finds that: (1) regional integration enhances the level of basic innovation of VC-intervened firms; (2) regional integration policies shorten the institutional distance between VCs and invested firms' cities, which in turn enhances the promotional effect of venture capital on the basic innovation of firms; (3) under the background of regional integration, the growth of basic innovation of state-owned VC-intervened firms and strategic emerging firms is more significant than that of private VC-intervened firms and traditional firms; (4) the growth of basic innovation of state-owned VC-intervened firms and strategic emerging firms is more significant than that of private VC-intervened firms. emerging firms have faster growth in basic innovation. The findings of the study are of great significance in identifying the extent of the impact of integration development strategy on VC's promotion of enterprises' fundamental innovation, and in targeting the direction of development of China's venture capital, and in promoting the improvement of the innovation capacity of real enterprises.