Industrial policy and governmental venture capital: Evidence from China

This paper examines the role of governmental venture capital firms (GVCs) in supporting industries endorsed by the government. Specifically, we find that GVCs are more likely to invest in industries targeted by the industrial policy compared to non-GVCs. Further analyses on investment behavior suggest that GVCs make larger investments, invest in earlier rounds, and have longer holding periods in government-endorsed industries compared with non-GVCs. In terms of investment outcome, although GVCs have poorer financial performance while supporting targeted industries, they do play a positive role in promoting corporate innovation. Taken together, this paper provides novel empirical evidence on the important role of GVCs in facilitating the implementation of industrial policies.