Venture capital and innovation in China: The non-linear evidence

This study investigates the non-linear relationship between venture capital investment and technological innovation for 28 provinces in China, using the panel smooth transition regression (PSTR) model for the period 2001-2014. Our results confirm that the relationship within the empirical model is indeed non-linear, and venture capital (VC) only presents a positive impact on innovation in China when investment is large enough over the threshold level. However, VC may severely hurt the innovative abilities of invested enterprises when the scale of investment is relatively small, especially in “western” and “lower-investment” provinces after dividing the sample provinces into different groups.