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The Signaling Effect of Government R&D Subsidies on Inducing Venture Capital Funding  

Hong, Seulki (The Graduate School of Management of Technology, Yonsei University)
Bae, Sung Joo (School of Business, Yonsei University)
Publication Information
Asia-Pacific Journal of Business Venturing and Entrepreneurship / v.17, no.6, 2022 , pp. 39-50 More about this Journal
Abstract
Based on the signaling theory, this study examined whether startups are more likely to attract venture investment when receiving government R&D subsidies. First, we reviewed previous studies of the investment decision-making process of venture capitalists and understood the conditions that influence investment decisions. Based on previous studies on the signal effect of government subsidies, particularly government R&D grants, on inducing private fund investment, this study revealed a mechanism to induce venture investment by startups. In addition, in order to verify whether government R&D subsidies have the effect of inducing venture investment, an empirical analysis was conducted based on data from startups under seven years and certified as a venture companies in 2021. This paper used PSM(Propensity Score Matching) method and DID(Difference In Difference) analysis for an empirical study to analyze the average treatment effect on the treated group(beneficiary startups of government R&D grants). As a result of empirical analysis, companies that receive more government R&D subsidies after starting a business are more likely to attract venture investment. From two to three years after conducting the first government R&D project, startups that received government R&D grants attracted more venture investment than those that did not. The results of this paper demonstrate that government R&D projects can also affect the venture investment ecosystem, giving policy implications to government R&D projects targeting startups. It is also expected to suggest strategic implications to startups that need new funding.
Keywords
Startup; Government R&D subsidy; Venture capital funding; Signaling theory; Propensity Score Matching(PSM); Difference In Difference(DID);
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Times Cited By KSCI : 1  (Citation Analysis)
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