IDEAS home Printed from https://ideas.repec.org/a/kap/sbusec/v52y2019i3d10.1007_s11187-017-9983-2.html
   My bibliography  Save this article

Financial development and the geographies of startup cities: evidence from China

Author

Listed:
  • Fenghua Pan

    (Beijing Normal University
    Beijing Normal University)

  • Bofei Yang

    (Beijing Normal University
    Beijing Normal University)

Abstract

It has been widely observed that financial support is the key to entrepreneurial activities. The last decade has witnessed tremendous growth of startups and financial markets in China. Despite “mass entrepreneurship and innovation” becoming a national agenda item in China in recent years, few studies have investigated how financial development is related to entrepreneurial activities across cities in such an emerging economy. Drawing on a unique dataset of over 5000 startups in China, this study investigates the geographical characteristics of startup cities and the role of finance in promoting startups across Chinese cities. We find that there exists significant geographical concentration of startups. Beijing, Shanghai, and Shenzhen are the most important startup cities in the country. Regression results show that strong financial supports from both equity financing and credit financing are beneficial to the development of startups at the regional level. Venture capital availability is found to have very positive effects on the entrepreneurial activities in a city. The agglomeration of startups in financial centers and neighboring regions indicate that there exist strong positive externalities of metropolitan cities where the key financial, political, and technology resources are located.

Suggested Citation

  • Fenghua Pan & Bofei Yang, 2019. "Financial development and the geographies of startup cities: evidence from China," Small Business Economics, Springer, vol. 52(3), pages 743-758, March.
    • Handle: RePEc:kap:sbusec:v:52:y:2019:i:3:d:10.1007_s11187-017-9983-2
    DOI: 10.1007/s11187-017-9983-2
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s11187-017-9983-2
    File Function: Abstract
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s11187-017-9983-2?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Zoran Ivković & Scott Weisbenner, 2005. "Local Does as Local Is: Information Content of the Geography of Individual Investors' Common Stock Investments," Journal of Finance, American Finance Association, vol. 60(1), pages 267-306, February.
    2. Antonio Acconcia & Alfredo Del Monte & Luca Pennacchio & Germana Scepi, 2011. "IPO Underpricing and the Location of Firms," CSEF Working Papers 295, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 04 Feb 2021.
    3. Sadok El Ghoul & Omrane Guedhami & Yang Ni & Jeffrey Pittman & Samir Saadi, 2013. "Does Information Asymmetry Matter to Equity Pricing? Evidence from Firms’ Geographic Location," Contemporary Accounting Research, John Wiley & Sons, vol. 30(1), pages 140-181, March.
    4. Jay R. Ritter & Ivo Welch, 2002. "A Review of IPO Activity, Pricing, and Allocations," Journal of Finance, American Finance Association, vol. 57(4), pages 1795-1828, August.
    5. Lu, Jiangyong & Tao, Zhigang, 2010. "Determinants of entrepreneurial activities in China," Journal of Business Venturing, Elsevier, vol. 25(3), pages 261-273, May.
    6. Acs, Zoltan J & Audretsch, David B & Feldman, Maryann P, 1994. "R&D Spillovers and Recipient Firm Size," The Review of Economics and Statistics, MIT Press, vol. 76(2), pages 336-340, May.
    7. Stéphane Malo & Jesper Norus†, 2009. "Growth dynamics of dedicated biotechnology firms in transition economies. Evidence from the Baltic countries and Poland," Entrepreneurship & Regional Development, Taylor & Francis Journals, vol. 21(5-6), pages 481-502, September.
    8. Fangfang Cheng & Frank van Oort & Stan Geertman & Pieter Hooimeijer, 2014. "Science Parks and the Co-location of High-tech Small- and Medium-sized Firms in China’s Shenzhen," Urban Studies, Urban Studies Journal Limited, vol. 51(5), pages 1073-1089, April.
    9. Qi Guo & Canfei He & Deyu Li, 2016. "Entrepreneurship in China: The role of localisation and urbanisation economies," Urban Studies, Urban Studies Journal Limited, vol. 53(12), pages 2584-2606, September.
    10. Thomas Hellmann & Manju Puri, 2002. "Venture Capital and the Professionalization of Start‐Up Firms: Empirical Evidence," Journal of Finance, American Finance Association, vol. 57(1), pages 169-197, February.
    11. Heike Delfmann, 2012. "Population change and new firm formation in urban and rural regions," ERSA conference papers ersa12p466, European Regional Science Association.
    12. Patricia McDougall & Richard B. Robinson, 1990. "New venture strategies: An empirical identification of eight ‘archetypes’ of competitive strategies for entry," Strategic Management Journal, Wiley Blackwell, vol. 11(6), pages 447-467, October.
    13. Hsu, Po-Hsuan & Tian, Xuan & Xu, Yan, 2014. "Financial development and innovation: Cross-country evidence," Journal of Financial Economics, Elsevier, vol. 112(1), pages 116-135.
    14. Winton, Andrew & Yerramilli, Vijay, 2008. "Entrepreneurial finance: Banks versus venture capital," Journal of Financial Economics, Elsevier, vol. 88(1), pages 51-79, April.
    15. James R. Brown & Steven M. Fazzari & Bruce C. Petersen, 2009. "Financing Innovation and Growth: Cash Flow, External Equity, and the 1990s R&D Boom," Journal of Finance, American Finance Association, vol. 64(1), pages 151-185, February.
    16. James R. Brown & Gustav Martinsson & Bruce C. Petersen, 2013. "Law, Stock Markets, and Innovation," Journal of Finance, American Finance Association, vol. 68(4), pages 1517-1549, August.
    17. Doeringer, Peter & Evans-Klock, Christine & Terkla, David, 2004. "What attracts high performance factories? Management culture and regional advantage," Regional Science and Urban Economics, Elsevier, vol. 34(5), pages 591-618, September.
    18. Raghuram G. Rajan & Luigi Zingales, 2001. "Financial Systems, Industrial Structure, and Growth," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 17(4), pages 467-482.
    19. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    20. Luboš Pástor & Pietro Veronesi, 2009. "Technological Revolutions and Stock Prices," American Economic Review, American Economic Association, vol. 99(4), pages 1451-1483, September.
    21. Barry Moore & Peter Tyler & Dan Elliott, 1991. "The Influence of Regional Development Incentives and Infrastructure on the Location of Small and Medium Sized Companies in Europe," Urban Studies, Urban Studies Journal Limited, vol. 28(6), pages 1001-1026, December.
    22. William Gartner & Casey Frid & John Alexander, 2012. "Financing the emerging firm," Small Business Economics, Springer, vol. 39(3), pages 745-761, October.
    23. Bruton, Garry D. & Ahlstrom, David, 2003. "An institutional view of China's venture capital industry: Explaining the differences between China and the West," Journal of Business Venturing, Elsevier, vol. 18(2), pages 233-259, March.
    24. Florida, Richard & Mellander , Charlotta, 2014. "Rise of the Startup City: The Changing Geography of the Venture Capital Financed Innovation," Working Paper Series in Economics and Institutions of Innovation 377, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
    25. Jun Zhang, 2011. "The Spatial Dynamics of Globalizing Venture Capital in China," Environment and Planning A, , vol. 43(7), pages 1562-1580, July.
    26. Matthew A. Zook, 2002. "Grounded capital: venture financing and the geography of the Internet industry, 1994--2000," Journal of Economic Geography, Oxford University Press, vol. 2(2), pages 151-177, April.
    27. Tatsuyoshi Masuda, 2006. "The Determinants of Latent Entrepreneurship in Japan," Small Business Economics, Springer, vol. 26(3), pages 227-240, April.
    28. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
    29. Gary A S Cook & Naresh R Pandit & Jonathan V Beaverstock & Peter J Taylor & Kathy Pain, 2007. "The Role of Location in Knowledge Creation and Diffusion: Evidence of Centripetal and Centrifugal Forces in the City of London Financial Services Agglomeration," Environment and Planning A, , vol. 39(6), pages 1325-1345, June.
    30. Ron Boschma & Ron Martin (ed.), 2010. "The Handbook of Evolutionary Economic Geography," Books, Edward Elgar Publishing, number 12864.
    31. Jeng, Leslie A. & Wells, Philippe C., 2000. "The determinants of venture capital funding: evidence across countries," Journal of Corporate Finance, Elsevier, vol. 6(3), pages 241-289, September.
    32. Henry Chen & Paul Gompers & Anna Kovner & Josh Lerner, 2010. "Buy Local? The Geography of Venture Capital," NBER Chapters, in: Cities and Entrepreneurship, National Bureau of Economic Research, Inc.
    33. Michael Fritsch & Dirk Schilder, 2012. "The Regional Supply of Venture Capital: Can Syndication Overcome Bottlenecks?," Economic Geography, Taylor & Francis Journals, vol. 88(1), pages 59-76, January.
    34. Florida, Richard & Kenney, Martin, 1988. "Venture capital and high technology entrepreneurship," Journal of Business Venturing, Elsevier, vol. 3(4), pages 301-319.
    35. Schwienbacher, Armin, 2007. "A theoretical analysis of optimal financing strategies for different types of capital-constrained entrepreneurs," Journal of Business Venturing, Elsevier, vol. 22(6), pages 753-781, November.
    36. White, Steven & Gao, Jian & Zhang, Wei, 2005. "Financing new ventures in China: System antecedents and institutionalization," Research Policy, Elsevier, vol. 34(6), pages 894-913, August.
    37. Megginson, William L & Weiss, Kathleen A, 1991. "Venture Capitalist Certification in Initial Public Offerings," Journal of Finance, American Finance Association, vol. 46(3), pages 879-903, July.
    38. Paul Gompers & Josh Lerner, 2001. "The Venture Capital Revolution," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 145-168, Spring.
    39. Catherine Armington & Zoltan Acs, 2002. "The Determinants of Regional Variation in New Firm Formation," Regional Studies, Taylor & Francis Journals, vol. 36(1), pages 33-45.
    40. Davila, Antonio & Foster, George & Gupta, Mahendra, 2003. "Venture capital financing and the growth of startup firms," Journal of Business Venturing, Elsevier, vol. 18(6), pages 689-708, November.
    41. David North & David Smallbone, 2000. "The Innovativeness and Growth of Rural SMEs During the 1990s," Regional Studies, Taylor & Francis Journals, vol. 34(2), pages 145-157.
    42. Edward L. Glaeser, 2007. "Entrepreneurship and the City," NBER Working Papers 13551, National Bureau of Economic Research, Inc.
    43. Lissoni, Francesco, 2001. "Knowledge codification and the geography of innovation: the case of Brescia mechanical cluster," Research Policy, Elsevier, vol. 30(9), pages 1479-1500, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Yuying Wu & Zhiqiang Wang & Yuan Lu, 2023. "Mapping the evolution of entrepreneurial research themes in China: A combination analysis of co-word and critical event," Asia Pacific Journal of Management, Springer, vol. 40(3), pages 1133-1167, September.
    2. Tan, Xiujie & Yan, Yaxue & Dong, Yuyang, 2022. "Peer effect in green credit induced green innovation: An empirical study from China's Green Credit Guidelines," Resources Policy, Elsevier, vol. 76(C).
    3. Isil R. Yavuz & Berrak Bahadir, 2021. "Remittances, Ethnic Diversity, and Entrepreneurship in Developing Countries," Working Papers 2110, Florida International University, Department of Economics.
    4. Sergio Salles-Filho & Bruno Fischer & Yohanna Juk & Paulo Feitosa & Fernando A. B. Colugnati, 2023. "Acknowledging diversity in knowledge-intensive entrepreneurship: assessing the Brazilian small business innovation research," The Journal of Technology Transfer, Springer, vol. 48(4), pages 1446-1465, August.
    5. Clement Olalekan Olaniyi, 2022. "On the transmission mechanisms in the finance–growth nexus in Southern African countries: Does institution matter?," Economic Change and Restructuring, Springer, vol. 55(1), pages 153-191, February.
    6. Eva Coll‐Martínez & Elisenda Jové‐Llopis & Mercedes Teruel, 2022. "The city of start‐ups: Location determinants of start‐ups in emergent industries in Barcelona," Growth and Change, Wiley Blackwell, vol. 53(2), pages 972-1007, June.
    7. Fenjie Long & Longfei Zheng & Haifeng Qian, 2023. "Entrepreneurship in China’s peripheral regions," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 70(1), pages 287-313, February.
    8. André Cherubini Alves & Bruno Brandão Fischer & Nicholas S. Vonortas, 2021. "Ecosystems of entrepreneurship: configurations and critical dimensions," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 67(1), pages 73-106, August.
    9. Fandi Yang & Peng Yuan & Gongxiong Jiang, 2022. "Knowledge Spillovers, Institutional Environment, and Entrepreneurship: Evidence from China," Sustainability, MDPI, vol. 14(22), pages 1-27, November.
    10. Haipeng Zhang & Wei Chen & Zhigao Liu, 2022. "Spatiotemporal Evolution of Entrepreneurial Activities and Its Driving Factors in the Yangtze River Delta, China," Land, MDPI, vol. 11(2), pages 1-21, January.
    11. R. Isil Yavuz & Berrak Bahadir, 2022. "Remittances, ethnic diversity, and entrepreneurship in developing countries," Small Business Economics, Springer, vol. 58(4), pages 1931-1952, April.
    12. Peng Bin & Xiaolan Chen & Andrea Fracasso & Chiara Tomasi, 2020. "Firm employment growth in China: The role of marketization and regional economic factors," Growth and Change, Wiley Blackwell, vol. 51(1), pages 402-439, March.
    13. Jiyoung Kimjeon & Per Davidsson, 2022. "External Enablers of Entrepreneurship: A Review and Agenda for Accumulation of Strategically Actionable Knowledge," Entrepreneurship Theory and Practice, , vol. 46(3), pages 643-687, May.
    14. Li, Yutao & Zhang, Jinning & Lyu, Yanwei, 2023. "Does telecommunications infrastructure promote entrepreneurship in developing countries? Evidence from a quasi-natural experiment in China," Structural Change and Economic Dynamics, Elsevier, vol. 66(C), pages 106-119.
    15. Chaoying Lin & Lerong He & Guangqing Yang, 2021. "Targeted monetary policy and financing constraints of Chinese small businesses," Small Business Economics, Springer, vol. 57(4), pages 2107-2124, December.
    16. Brown, Ross & Rocha, Augusto, 2020. "Entrepreneurial uncertainty during the Covid-19 crisis: Mapping the temporal dynamics of entrepreneurial finance," Journal of Business Venturing Insights, Elsevier, vol. 14(C).
    17. Bai, Caiquan & Yan, Hong & Yin, Shanggang & Feng, Chen & Wei, Qian, 2021. "Exploring the development trend of internet finance in China: Perspective from club convergence," The North American Journal of Economics and Finance, Elsevier, vol. 58(C).
    18. Douglas Cumming & Satish Kumar & Weng Marc Lim & Nitesh Pandey, 2023. "Mapping the venture capital and private equity research: a bibliometric review and future research agenda," Small Business Economics, Springer, vol. 61(1), pages 173-221, June.
    19. Martin Hemmert & Adam R. Cross & Ying Cheng & Jae-Jin Kim & Masahiro Kotosaka & Franz Waldenberger & Leven J. Zheng, 2022. "New venture entrepreneurship and context in East Asia: a systematic literature review," Asian Business & Management, Palgrave Macmillan, vol. 21(5), pages 831-865, November.
    20. Ngo, Thanh & Trinh, Hai Hong & Haouas, Ilham & Ullah, Subhan, 2022. "Examining the bidirectional nexus between financial development and green growth: International evidence through the roles of human capital and education expenditure," Resources Policy, Elsevier, vol. 79(C).
    21. Yáñez-Valdés, Claudia & Guerrero, Maribel & Barros-Celume, Sebastián & Ibáñez, María J., 2023. "Winds of change due to global lockdowns: Refreshing digital social entrepreneurship research paradigm," Technological Forecasting and Social Change, Elsevier, vol. 190(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Valérie Revest & Alessandro Sapio, 2012. "Financing technology-based small firms in Europe: what do we know?," Small Business Economics, Springer, vol. 39(1), pages 179-205, July.
    2. Rin, Marco Da & Hellmann, Thomas & Puri, Manju, 2013. "A Survey of Venture Capital Research," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, volume 2, chapter 0, pages 573-648, Elsevier.
    3. Magnus Schückes & Tobias Gutmann, 2021. "Why do startups pursue initial coin offerings (ICOs)? The role of economic drivers and social identity on funding choice," Small Business Economics, Springer, vol. 57(2), pages 1027-1052, August.
    4. Christos Kolympiris & Sebastian Hoenen & Nicholas Kalaitzandonakes, 2018. "Geographic distance between venture capitalists and target firms and the value of quality signals," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 27(1), pages 189-220.
    5. Lööf, Hans & Martinsson, Gustav & Mohammadi, Ali, 2017. "Finance and Innovative Investment in Environmental Technology: The Case of Sweden," Working Paper Series in Economics and Institutions of Innovation 445, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
    6. Diana Hechavarría & Charles Matthews & Paul Reynolds, 2016. "Does start-up financing influence start-up speed? Evidence from the panel study of entrepreneurial dynamics," Small Business Economics, Springer, vol. 46(1), pages 137-167, January.
    7. Fabio Bertoni & María Ferrer & José Martí, 2013. "The different roles played by venture capital and private equity investors on the investment activity of their portfolio firms," Small Business Economics, Springer, vol. 40(3), pages 607-633, April.
    8. Andy Cosh & Douglas Cumming & Alan Hughes, 2009. "Outside Enterpreneurial Capital," Economic Journal, Royal Economic Society, vol. 119(540), pages 1494-1533, October.
    9. Baeyens, K. & Manigart, S., 2006. "Who gets private equity? The role of debt capacity, growth and intangible assets," Vlerick Leuven Gent Management School Working Paper Series 2006-24, Vlerick Leuven Gent Management School.
    10. Alperovych, Yan & Hübner, Georges, 2011. "Explaining returns on venture capital backed companies: Evidence from Belgium," Research in International Business and Finance, Elsevier, vol. 25(3), pages 277-295, September.
    11. Giebel, Marek & Kraft, Kornelius, 2020. "R&D investment under financing constraints," ZEW Discussion Papers 20-018, ZEW - Leibniz Centre for European Economic Research.
    12. Goktan, M. Sinan & Muslu, Volkan, 2018. "Benefits of public reporting: Evidence from IPOs backed by listed private equity firms," Journal of Corporate Finance, Elsevier, vol. 50(C), pages 669-688.
    13. Sabrina T. Howell & Filippo Mezzanotti, 2019. "Financing Entrepreneurship through the Tax Code: Angel Investor Tax Credits," NBER Working Papers 26486, National Bureau of Economic Research, Inc.
    14. Francesco Aiello & Graziella Bonanno & Stefania Patrizia Sonia Rossi, 2019. "Risk Aversion And Entrepreneurship: Financing Innovation For Smes Across Europe. Evidence From Multilevel Models," Working Papers 201902, Università della Calabria, Dipartimento di Economia, Statistica e Finanza "Giovanni Anania" - DESF.
    15. Bechlioulis, Alexandros & Economidou, Claire & Karamanis, Dimitrios & Konstantios, Dimitrios, 2023. "How important are capital controls in shaping innovation activity?," Journal of International Money and Finance, Elsevier, vol. 131(C).
    16. James R. Brown & Gustav Martinsson, 2019. "Does Transparency Stifle or Facilitate Innovation?," Management Science, INFORMS, vol. 65(4), pages 1600-1623, April.
    17. Massimiliano Guerini & Francesca Tenca, 2018. "The geography of technology-intensive start-ups and venture capital: European evidence," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 45(3), pages 361-386, September.
    18. Michael Peneder, 2009. "The impact of venture capital on innovation behaviour and firm growth," Venture Capital, Taylor & Francis Journals, vol. 12(2), pages 83-107, November.
    19. Munari, Federico & Toschi, Laura, 2015. "Assessing the impact of public venture capital programmes in the United Kingdom: Do regional characteristics matter?," Journal of Business Venturing, Elsevier, vol. 30(2), pages 205-226.
    20. Diana M. Hechavarría & Charles H. Matthews & Paul D. Reynolds, 2016. "Does start-up financing influence start-up speed? Evidence from the panel study of entrepreneurial dynamics," Small Business Economics, Springer, vol. 46(1), pages 137-167, January.

    More about this item

    Keywords

    Startups; Entrepreneurial activity; Financial development; Venture capital; China;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • R1 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics
    • R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:sbusec:v:52:y:2019:i:3:d:10.1007_s11187-017-9983-2. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.