Latest Seminars

Beware of Strange Bed-fellows: An Analysis of Partnerships between the State and Venture Investors in Managing Government Guiding Funds in China

We study how the power of the state to extract value can adversely affect itself when the state forms partnerships with private parties. We argue that greater concerns over state extraction from its private partners produce a larger deterring effect on the potential partners that have more outside market opportunities and thus are less dependent on the state, hence reducing the quality of the pool of candidate partners available to the state. We examine Government Guiding Funds (GGF) in China which are founded by various levels of governments in China in accordance to a new form of industrial policy that aims to use public funds as seed money to increase public and private investment in high-tech and emerging industries and to support entrepreneurship. Most GGFs hire venture capital (VC) and private equity (PE) firms of which most are fully or partially owned by private entities as management companies to manage and invest the funds. However, a key tension facing a potential VC/PE partner is that, despite the state’s ex ante commitment of refraining from interfering in investment decisions, this commitment may not be credible owing to a lack of institutional constraints on the state’s extractive power, whereas ex post state interference threatens the profitability of the investments. We demonstrate that when the state’s extractive power is higher, the VC/PE firms that end up managing the GGFs tend to be of lower quality in terms of having less market experience. They also tend to have a stronger state background that allows them to resist state interference. These insights deepen the understanding of the tension created by two opposing forces—the resource dependence and the concerns over misappropriation of value—in the formation of inter-organizational relationships.

 

Speaker :
Prof. Nan Jia, University of Southern California
Venue :
LSK Rm5047 (Lift 1-2)
Date :
10.05.2019
Time :
10:30am-12:00pm