The Power of Public Funding. From the Certification Effect to the Valuation Powers in the Financing of Innovation in France

Public funding for innovation is widely held to "certify" the firms it supports, allowing them to attract more private financing. Yet the certification hypothesis was originally formulated for highly selective programs run by agencies with substantial technical expertise, and it remains unclear why the effect persists for instruments that meet neither condition—and what, fundamentally, gives public funding this power. Drawing on the socio-economics of valuation, this paper reframes the certification effect as one expression of the valuation power of public funding agencies, and asks where that power originates. We combine a quantitative and a qualitative analysis of innovation grants distributed by the French public investment bank (Bpifrance). Using administrative data and a difference-in-differences design, we show that obtaining a grant in 2021 raised recipient firms' financial leverage by six to seven percentage points two years later, even though the grant is neither selective nor expertise-intensive, and that this effect is driven neither by the amount of funding (a "resource effect") nor by prior endorsement from private entrepreneurial networks. Symbolic capital—Bpifrance's standing as an emanation of the state—thus appears to be the principal source of its valuation power. Interviews and application files, however, qualify this conclusion: the certification of public funding is entangled with that of private and para-public networks, and rests on evaluation conventions that Bpifrance shares with, and partly borrows from, the private financiers it is meant to certify firms towards. The valuation power of public funding is therefore both rooted in the symbolic authority of the state and tempered by its dependence on the conventions of private finance.