Leading or facilitating? —— The appropriate role of governmental venture capital in China

This paper examines the influence of syndicated investments involving governmental venture capital (GVC) and private venture capital firms (PVC) on the success of innovative companies in China. By analysing a comprehensive dataset of small and medium-sized firms in China's third-tier equity market, the National Equities Exchange and Quotations (NEEQ), we demonstrate that compared to the syndicated investment led by GVC, those GVCs playing a facilitating role have a more significant effect on boosting innovation firms' success in NEEQ. We identify three ways syndications help firms graduate to main stock markets: improving resource allocation, enhancing innovation quality, and lowering agency risk. Further investigation based on a quasi-natural experiment indicates that GVC-facilitating syndication impacts are more pronounced after adopting the Government Investment Regulation in 2018.