Driving renewable energy innovation investments: Is venture capital a novel strategic choice? Evidence from China

Abstract

The relationship between venture capital (VC) and corporate innovation has been a topic of debate. Most existing studies have focused on the general effects of VC on innovation investments, neglecting the specific mechanisms. In the global transition toward low-carbon energy, renewable energy (RE) is increasingly becoming a focus area for VC. However, whether VC can effectively stimulate innovation investments in RE firms remains uncertain. This study addressed these gaps by systematically investigating the impact of VC on renewable energy innovation investments (REII) using data from 114 listed RE companies in China from 2011 to 2023. Our findings demonstrate that VC significantly stimulates REII, with a particularly pronounced effect in high-growth and profitable companies, thereby providing new empirical evidence to the ongoing debate on VC's role in corporate innovation. Furthermore, we uncover that VC not only alleviates financial mismatch but also reduces rent-seeking costs, thereby indirectly fostering innovation. These mechanisms help explain how VC can enhance the innovation capabilities of RE companies. Lastly, we find that joint VC, state-owned VC, and long-term VC are especially conducive to promoting innovation. Based on these findings, we offered targeted policy suggestions to boost the innovation potential of China's RE sector.