"Investing with the Government: A Field Exp eriment in China"
Abstract:
We study the demand for government participation in financial markets. Focusing on the venture capital and private equity indus try in China, we design a non-deceptive field experiment in collaboration w ith the leading industry organization, through which we conduct 1,000 exper imental surveys of both sides of the market: the capital investors (LPs) an d the private firms that manage the invested capital by deploying it to hig h-growth firms (GPs). Our respondents together account for nearly $1 trilli on in assets under management. Each respondent evaluates hypothetical profi les of potential partners, whose characteristics we randomize, under the re al-stakes incentive that they will be matched with and introduced to real p artners based on their preferences. We document that the aver- age GP disli kes government-connected LPs. Consistent with political views of government participation in finance, such dislike is not present for government-owned GPs. To further unpack channels, we conduct additional large-scale surveys , which suggest the presence of political interference in decision-making, and the presence of bureaucrats rather than in- vestment professionals in t he management of government LPs, to be leading mechanisms why private GPs p refer capital from private LPs. On the other hand, we find that the average LP prefers GPs that have a government-connected LP as an investor. To illu strate the importance of accounting for demand for different sources of cap ital, we first establish two stylized facts using administrative data: gove rnment LPs are more likely to match with government-owned GPs, and governme nt-owned GPs have lower returns. We then quantify the equilibrium impact of government participation on market outcomes using a two-sided search and m atching model and conduct several policy counterfactuals
DTSTAMP:20260406T010726Z DTSTART:20211214T130000Z DTEND:20211214T140000Z SEQUENCE:0 TRANSP:OPAQUE END:VEVENT END:VCALENDAR