Governmental venture capital and investor sentiment: Evidence from Chinese government guidance funds

Xinfei Huang, Yue Zhang and Zhe Zong

Journal of International Financial Markets, Institutions and Money, 2025, vol. 99, issue C

Abstract: While the role of government-backed venture capital (GVC) in influencing companies’ operating performance has been well-documented, its potential impact on the financial market remains less explored. This paper aims to fill this gap in the context of China’s venture capital market. Since 2002, the Chinese government has launched a type of policy VC fund—government guidance funds (GGFs)—to stimulate innovation, industrial transformation, and local economic growth. Using a sample of 2,860 IPO companies from 2010 to 2021, we show that GGF-backed IPOs exhibited higher initial returns than both non-VC-backed and non-GGF VC-backed IPOs. A decomposition of the initial returns reveals that this effect was driven by market overvaluation rather than IPO price discounts. Consistent with investor sentiment and signaling theory, our results suggest that investors held optimistic views towards GGF-backed companies. However, when assessing post-IPO operating and innovation performance, GGF-backed companies did not outperform their counterparts. Overall, this paper highlights the signaling effects of GGFs in the financial market and provides important policy implications for the design of GVC programs worldwide.

Keywords: Venture capital; Government guidance funds; IPO initial return; Market overvaluation; Investor sentiment; Signaling theory (search for similar items in EconPapers)
JEL-codes: G24 G32 G41 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1042443125000101
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:99:y:2025:i:c:s1042443125000101

DOI: 10.1016/j.intfin.2025.102120

Access Statistics for this article

Journal of International Financial Markets, Institutions and Money is currently edited by I. Mathur and C. J. Neely

More articles in Journal of International Financial Markets, Institutions and Money from Elsevier
Bibliographic data for series maintained by Catherine Liu ().