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The signaling effect of entrepreneurship subsidies on initial public offering investor valuation: An anticorruption campaign as a quasi‐natural experiment.
- Source :
- Strategic Entrepreneurship Journal; Sep2023, Vol. 17 Issue 3, p633-670, 38p
- Publication Year :
- 2023
-
Abstract
- Research Summary: This study examines whether different entrepreneurship subsidies signal initial public offering (IPO) firms' quality to external investors. We employ a quasi‐natural experiment by exploiting the exogenous, staggered introduction of "Eight‐Point Code" inspections to Chinese provinces, which anticorruption campaign impacts how subsidies match firm quality. Based on a difference‐in‐differences analysis of 584 IPOs, we find that research and development (R&D) subsidies match highly innovative firms regardless of government corruption, but investors interpret R&D subsidies as a quality signal only when government corruption is low. High‐growth subsidies match high‐growth firms only when government corruption is low; however, investors do not interpret high‐growth subsidies as a quality signal regardless of government corruption. Our study contributes by examining subsidy–firm matching and investors' interpretations to isolate the signaling effect of entrepreneurship subsidies. Managerial Summary: Do initial public offering (IPO) investors interpret different entrepreneurship subsidies as signals of entrepreneurial firms' quality? We find that when government corruption is high, research and development (R&D) subsidies are matched to high‐quality firms, but high‐growth (HG) subsidies are not; nevertheless, because of dubious subsidy–firm matching under high corruption, neither R&D nor HG subsidies signal firm quality to IPO investors. When government corruption is low, both R&D and HG subsidies are matched to high‐quality firms; however, because of the distinct nature of innovation and growth, IPO investors interpret only R&D subsidies as a signal of quality, ignoring HG subsidies. Our findings suggest that investors' interpretations of entrepreneurship subsidies depend on subsidy type as well as subsidy–firm matching under different anticorruption regulations. [ABSTRACT FROM AUTHOR]
- Subjects :
- INVESTORS
GOING public (Securities)
SUBSIDIES
ENTREPRENEURSHIP
VALUATION
Subjects
Details
- Language :
- English
- ISSN :
- 19324391
- Volume :
- 17
- Issue :
- 3
- Database :
- Complementary Index
- Journal :
- Strategic Entrepreneurship Journal
- Publication Type :
- Academic Journal
- Accession number :
- 171961036
- Full Text :
- https://doi.org/10.1002/sej.1460