The real effect of liquidity provision on entrepreneurial financing: evidence from a natural experiment in China

Bo Liu, Jerry Cao, Sofia Johan and Tiecheng Leng

The European Journal of Finance, 2019, vol. 25, issue 6, 568-593

Abstract: This paper utilizes a natural experiment – the establishment of the Shenzhen Small and Medium Enterprises Board (SME Board) – as an exogenous shock of liquidity provision to venture capital (VC) investment in China. The establishing of the SME Board has enabled the disentangling of the supply side from the demand side of entrepreneurial financing. The results show that the establishment of the SME Board had a strong positive impact on VC investment activities. The impact, however, occurs mainly through the supply side channel, in the form of an influx of first-time VC funds and new government-sponsored VC funds. Such supply shocks, created by inexperienced – but politically connected – VCs, tend to overheat the VC market in the short-run. The results are robust against various regression specifications and endogeneity concerns. This research highlights the importance of liquidity provision, institutional factors and government policies on the development of entrepreneurial financing.

Date: 2019
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/1351847X.2017.1307771 (text/html)
Access to full text is restricted to subscribers.

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:taf:eurjfi:v:25:y:2019:i:6:p:568-593

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/REJF20

DOI: 10.1080/1351847X.2017.1307771

Access Statistics for this article

The European Journal of Finance is currently edited by Chris Adcock

More articles in The European Journal of Finance from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().