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Endorsement and firm financing: Evidence from government venture capital market in China

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  • Huang, Xiaoxia
  • Jiang, Yanchen
  • Mallick, Sushanta

Abstract

This study investigates the effect of government venture capital (GVC) investment on firm financing and its underlying mechanism, utilizing 31,299 firm-year observations from 2008 to 2022 in China. The findings reveal that GVC investment enhances target firms’ equity financing, and it is the "stamp of endorsement" by the GVC investment that enhances equity financing for firms. Through a series of tests, the mechanism for the impact of GVC investment on equity financing is established via increased government subsidies and reduced cost of equity. In addition, firms with higher market awareness about GVC and privately-owned firms benefit more in enhancing their equity financing; this further confirms that financing enhancement originates from the government's role through endorsement mechanism in venture capital investment. The results remain robust after several robustness checks.

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  • Huang, Xiaoxia & Jiang, Yanchen & Mallick, Sushanta, 2025. "Endorsement and firm financing: Evidence from government venture capital market in China," The British Accounting Review, Elsevier, vol. 57(3).
    • Handle: RePEc:eee:bracre:v:57:y:2025:i:3:s089083892400235x
    DOI: 10.1016/j.bar.2024.101471
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