Investing with the Government: A Field Experiment in China

Emanuele Colonnelli, Bo Li and Ernest Liu

No 30161, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study the demand for government participation in China’s venture capital and private equity market. We conduct a large-scale, non-deceptive field experiment in collaboration with the leading industry service provider, through which we survey both capital investors and the firms managing the invested capital by deploying it to high-growth entrepreneurs. Each respondent evaluates synthetic profiles of potential investment partners, whose characteristics we randomize, under the incentive that they will be introduced to real partners matching their preferences. Our main result is that the average firm dislikes investors with government ties. We show that such dislike is not present with government-owned firms, and this dislike is highest with best-performing firms. Additional results and surveys suggest political interference in decision-making is the leading mechanism why government capital is unattractive to private firms. We feed administrative microdata and our experimental surveys into a simple model of two-sided search to discuss the equilibrium effects of government participation. Overall, our findings point to the limits of a model of “state capitalism” that strongly relies on the complementarity between private firms and government capital to drive high-growth entrepreneurship and innovation.

JEL-codes: C93 D2 D20 D22 G0 G02 G18 G28 G3 G38 G4 O0 O1 O14 O16 O17 O25 O3 O38 O4 O40 O47 (search for similar items in EconPapers)
Date: 2022-06
New Economics Papers: this item is included in nep-cna and nep-exp
Note: AP CF DEV EFG IFM ITI POL PR
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Citations: View citations in EconPapers (4)

Published as Emanuele Colonnelli & Bo Li & Ernest Liu, 2024. "Investing with the Government: A Field Experiment in China," Journal of Political Economy, vol 132(1), pages 248-294.

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Working Paper: Investing with the Government: A Field Experiment in China (2022)
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