Publication Type

PhD Dissertation

Version

publishedVersion

Publication Date

5-2025

Abstract

Since the establishment of China's first market-oriented government guidance fund in 2002, these funds have actively played a supportive role in addressing market failures and promoting the innovative development of technology enterprises by reducing information asymmetry in the primary equity market, releasing positive signals, and alleviating financing constraints. With the establishment and development of China's multi-tiered government guidance fund system, related research has gradually emerged. However, current studies primarily explore whether government guidance funds have fulfilled their role in fostering innovation from a macro perspective, with limited in-depth discussion from a micro-level on how these funds should conduct their investment operations. Therefore, a thorough analysis of the investment strategies of government guidance funds and the exploration of relevant improvement measures hold significant theoretical and practical importance.

This paper begins by systematically reviewing the literature on how government guidance funds influence corporate innovation. It then theoretically analyzes the impact and mechanisms of government guidance funds on corporate innovation. Subsequently, by examining the development trajectory of government guidance funds in China and analyzing typical cases, it outlines the current state of these funds. Finally, focusing on a specific government guidance fund in Hangzhou as a micro-level case study, the paper employs econometric models to empirically test whether the fund fulfills its guiding role. Additionally, based on different investment strategy choices—such as indirect investment versus dominant investment, industry selection, stage selection, lead-follow investment, valuation adjustment mechanism (VAM) settings, and whether the fund is the first-round external institutional investor—it quantitatively evaluates the differential effects of various investment decisions on corporate innovation. The paper further delves into the underlying mechanisms and provides referenceable insights for other municipal government guidance funds.

The main conclusions include: First, the investments of the Hangzhou government guidance fund promote corporate innovation and sustain innovation by alleviating financing constraints. Second, the fund prioritizes marketoriented operations while adhering to its guiding function, employing flexible investment models to target and foster the innovative development of local technology enterprises. Third, the fund’s different investment strategies yield varying effects on innovation guidance. Specifically, the fund demonstrates a stronger innovation-inducing effect on projects in the digital economy sector, which is a key focus of local development; on early-stage projects; on projects where the fund acts as a follower investor; on projects already backed by external institutional investors; and on projects without VAM clauses.

Based on the above analysis, this paper proposes the following policy recommendations for the establishment and development of municipal government guidance funds: First, when selecting potential sub-fund managers or making direct investments, government guidance funds should assess whether the investment decisions of these managers or their own teams align with the development goals of the fund’s locality. Second, in the investment process, municipal government guidance funds should prioritize industries supported by local policies, focus on early-stage projects, adopt a follow-on investment strategy, pay more attention to projects with existing external institutional investors, and remain open to projects without VAM clauses. Additionally, the funds should comprehensively evaluate whether to delegate investment decisions to sub-fund managers or retain a dominant role based on practical circumstances, thereby maximizing their innovation-inducing impact on local technology enterprises.

Keywords

Government Guidance Funds, Corporate Innovation, Hangzhou Case, Differential Innovation-Inducing Effects

Degree Awarded

Doctor of Business Administration (Accounting and Finance)

Discipline

Asian Studies | Corporate Finance

Supervisor(s)

YUE, Heng

First Page

1

Last Page

131

Publisher

Singapore Management University

City or Country

Singapore

Copyright Owner and License

Author

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