This study investigates the effects of government R&D programs on firm innovation outputs, which are measured by the number of patents, sales from new products, and exports. Particularly, we examine the effects of Innovation Fund for Small and Medium Technology-based Firms (Innofund), which is one of the largest government R&D programs that support R&D activities of small and medium-sized enterprises in China. Using a panel dataset on Chinese manufacturing firms from 1998 to 2007, we find that Innofund-backed firms generate significantly higher technological and commercialized innovation outputs compared with their nonInnofund-backed counterparts and the same firms before winning the grant. Moreover, the changes in the governance of Innofund in 2005 from a centralized to a decentralized one because of policy amendments have significant effects on the effectiveness of the program. Specifically, the magnified effects of Innofund on technological innovation outputs become significantly stronger after the governance of Innofund becomes more decentralized. Identification problems are addressed by utilizing both propensity score matching and two-stage estimation approaches.

firms are less likely to fail in the first four years after initially receiving venture investment. Chemmanur et al. (2011) examine the total factor productivity (TFP) of VC-backed and non-VCbacked firms using U.S. census data. The authors find that VC-backed firms outperform non-VC-backed ones in terms of TFP, and this outperformance is attributed to the ex-ante project screening and ex-post monitoring efforts of the VCs. Studies have also focused on the role of venture capital investment in the initial public offerings (IPOs) of entrepreneurial firms. The findings, however, are mixed. Megginson and Weiss (1991) and Barry et al. (1990) find that VC-backed IPOs are less underpriced than non-VC-backed IPOs. Brav and Gompers (1997) further prove that when returns are equally weighted, VC-backed IPOs outperform non-VC-backed IPOs over a five-year period. However, Bradley and Jordan (2002) assert that after controlling for industry effects and underwriter quality, no difference exists in the underpricing of VC-backed and non-VC-backed IPOs. Moreover, after dealing with potential selectivity biases, Lee and Wahal (2004) point out that VC-backed IPOs are significantly more underpriced than non-VC-backed IPOs. Although most existing studies have shown evidence that VC-backed firms generally outperform non-VC-backed firms, an important but under-investigated question remains: Are the performance differences between VC-backed and non-VC-backed firms caused by the ex-ante project selection or post-investment monitoring and support efforts of VCs? Filling this research gap enables us to understand the fundamental mechanism of venture capital investment; that is, whether VCs primarily contribute to firms by providing funds to better projects or fostering rapid growth (or by accomplishing both tasks). The study of Chemmanur et al. (2011) is the first systematic analysis that detangles the screening and monitoring effects of VCs based on firm-level data. Using three different approaches to address the selection and identification issues, the authors confirm that in the United States, VCs not only choose to invest in firms with higher efficiency, but also help the firms to improve the efficiency after the investment is made. Moreover, the authors report that the improved efficiency is mainly contributed by the sales growth of the firms. Finally, the authors reveal that the efficiency improvement of the VC-backed firms is heterogeneous depending on the reputation of the VCs; that is, firms backed by VCs with higher reputation 3 experience significantly higher post-investment efficiency improvement than those backed by VCs with lower reputation. Our analysis attempts to extend the findings of Chemmanur et al. (2011) by examining the contribution of venture investment to entrepreneurial firms in China. Almost all previous studies on venture capital investment are based on data from developed economies. The issue of whether venture capital investment may also contribute to the performance and innovation of entrepreneurial firms in ...

The sweeping change in political economy associated with the spectacular growth of the private sector in China is rarely studied empirically in the economics literature. This paper fills this gap. The central subject of this paper is the nature of the political economy of the Chinese private sector and of the Communist Party of China during these changes. We empirically examine the dynamics of rent creation from the Party membership and other political connections when the regime is changed from anti-capitalistic to procapitalistic. Endogeneity problems are addressed. We identify the causality of rents and the political connections of private entrepreneurs.

This study addresses two issues. First, does corporate social performance matter in Hong Kong. Second, if yes, is it relevant to some industries more than others. To answer these questions, we develop a corporate social performance index (CSP) to measure the quality of corporate social performance of major Hong Kong listed firms. The criteria are based on the OECD Principles of Corporate Governance. Using the 3-year period from 2002 to 2005, we find that firm valuation is positive and significantly associated with CSP. Interestingly, this relation matters less in China related firms and firms with a concentrated ownership structure. The results also show that CSP impacts firm valuation more positively when the firm is in the service sector. We further find that CSP is positively related to the market valuation of the subsequent year.

No abstract