One click into capital: The impact of digital government on venture capital

Abstract

Digital transformation in public sectors has become a prominent trend in economic development and public management. This paper utilizes a difference-in-differences (DID) approach based on the Chinese digital government (DG) policy to explore the impact of DG transformation on venture capital (VC) investment. The results show that DG transformation improves the likelihood and amount of VC investment for startups. These results remain robust after accounting for potential endogeneity concerns and conducting various robust checks. Additionally, this positive effect is driven by enhanced government efficiency and increased innovation activities. Furthermore, the study finds that DG policy shortens VC investment duration, underscoring the impact on investment strategies. This study contributes to the literature by providing novel insights into the effects of public sector digitalization and its role in stimulating private capital markets.