The impact of internet penetration on venture capital investments: Evidence from a quasi-natural experiment

Wenfei Li, Donghui Li and Shijie Yang

Journal of Corporate Finance, 2022, vol. 76, issue C

Abstract: This study investigates the relationship between internet penetration and venture capital (VC) investment in China. Exploiting staggered inclusion in demonstration cities under the Broadband China strategy as a positive shock to internet penetration, our difference-in-differences analysis shows that this policy shock results in an increase in VC investments in demonstration cities relative to others. Moreover, the increase in VC investments is concentrated in early stage financing and young start-ups. In terms of VC fund sources, we find a stronger effect on foreign and independent VCs. Our mechanism analysis suggests that the effect of the broadband rollout is mainly driven by cities with higher ex-ante costs of information acquisition and that such costs are reduced by the improvement of internet-based network infrastructure. Finally, we provide additional evidence on the benefits to established companies by showing that broadband rollout improves the information environment of listed firms. Our study sheds new light on the economic consequences of infrastructure development that reduces information acquisition costs in China.

Keywords: Broadband China” strategy; Venture capital; The internet; Information asymmetry (search for similar items in EconPapers)
JEL-codes: D83 G24 L86 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:76:y:2022:i:c:s0929119922001249

DOI: 10.1016/j.jcorpfin.2022.102281

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