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The optimization and selection of venture capital incentive policies under uncertain condition

  • 1.

    School of Economics & Management, Chang’an University, Xi’an 710054, China

  • 2.

    School of Public Affairs, University of Science and Technology of China, Hefei 230026, China

Cite this:
https://doi.org/10.52396/JUSTC-2022-0011
More Information
  • Author Bio:

    Wenjun Yan received her Ph.D. degree in Business Administration from Xi’an Jiaotong University in 2012. She is currently an associate professor in Chang’an University. Her major research interests focus on investment decision of venture capital and risk management of public capital

    Haonan He received his Ph.D. degree in Business Administration from the University of Science and Technology of China in 2019. He is currently a lecturer in Chang’an University. His research mainly focuses on innovation incentive policies

  • Corresponding author: E-mail: haonanhe@chd.edu.cn
  • Received Date: 04 January 2022
  • Accepted Date: 26 March 2022
    Abstract

  • Abstract

    Venture capital is crucial innovation capital. A venture capital option game model is constructed to obtain an incentive strategy that drives venture capital to actively allocate resources to support innovation based on risk subsidies and tax incentives. Moreover, the implementation effect of venture capital incentive policies under the value-uncertain condition of the entrepreneurial enterprise is studied. The results illustrate that when the uncertainty of the value of the entrepreneurial enterprise is less than the threshold, the tax preference policy is more effective in accelerating the investment decision-making of venture capital institutions. In contrast, the two policies have identical effects. When the uncertainty of the value of the entrepreneurial enterprise is less than the threshold, the risk subsidy policy has a better effect on increasing the investment scale of venture capital institutions, while the two policies have the same effect.

    Graphical abstract

    The optimal decision is obtained for venture capitals to invest startups and for governments to provide investment incentives based on the option game model.

    Abstract

    Venture capital is crucial innovation capital. A venture capital option game model is constructed to obtain an incentive strategy that drives venture capital to actively allocate resources to support innovation based on risk subsidies and tax incentives. Moreover, the implementation effect of venture capital incentive policies under the value-uncertain condition of the entrepreneurial enterprise is studied. The results illustrate that when the uncertainty of the value of the entrepreneurial enterprise is less than the threshold, the tax preference policy is more effective in accelerating the investment decision-making of venture capital institutions. In contrast, the two policies have identical effects. When the uncertainty of the value of the entrepreneurial enterprise is less than the threshold, the risk subsidy policy has a better effect on increasing the investment scale of venture capital institutions, while the two policies have the same effect.

    • Public Summary

    • This work constructs an option game model of government and venture capital institutions based on both tax incentives and risk subsidies.
    • The impact of uncertainty on optimal risk investment decisions and policies is measured.
    • The differences in the roles of the two investment incentive policies in different uncertainty intervals are obtained, which provides theoretical support for investment decision-making and incentive policy formulation.

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    • References(34)
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    Xu Y, Meng Y P. Evolution game between government and port enterprises under mandatory emission reduction. JUSTC, 2019, 49 (9): 762–772. doi: 10.3969/j.issn.0253-2778.2019.09.009
    [23]
    Liang X, Fu Y. Study on the supply side evolutionary game of green building under the mechanism of government dynamic reward and punishment. Chinese Journal of Management Science, 2020, 29 (2): 184–194. doi: 10.16381/j.cnki.issn1003-207x.2018.0917
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    Lukas E, Thiergart S. The interaction of debt financing, cash grants and the optimal investment policy under uncertainty. European Journal of Operational Research, 2019, 276 (1): 284–299. doi: 10.1016/j.ejor.2018.12.036
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    Wang W Q, Ma H J. Technology proximity, R&D investment and innovation performance in technology mergers and acquisitions-from a perspective of corporate life cycle. Management Review, 2020, 32 (6): 104–113. doi: 10.14120/j.cnki.cn11-5057/f.20191127.008
    [30]
    Ma S, Gao L M, Zhao G H. Bootstrap-DEA model oriented study on the theory of enterprise life cycle phase. China Soft Science, 2019 (11): 176–182. doi: 10.3969/j.issn.1002-9753.2019.11.017
    [31]
    Chang Y N, Wang S J. Profit allocation of PPP project from the perspective of incentives: The case of Chinese enterprises’ investment in the infrastructure projects of GMS countries under the support of Asian Infrastructure Investment Bank. Management Review, 2018, 30 (11): 257–265. doi: 10.14120/j.cnki.cn11-5057/f.2018.11.024
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    Li B X, Qiao J M, Niu X Q, et al. Game analysis of managers’ selection of long or short-term investment project from the perspective of managerial entrenchment. Management Review, 2019, 31 (1): 197–205. doi: 10.14120/j.cnki.cn11-5057/f.2019.01.018
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    Wong K P. On the neutrality of debt in the investment intensity. Annals of Finance, 2010, 6: 335–356. doi: 10.1007/s10436-009-0137-7
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    Figure  1.  Game flow chart between venture capital institutions and government options.

    Figure  2.  The optimal investment threshold and project uncertainty of venture capital institutions.

    Figure  3.  The optimal investment scale and project uncertainty of venture capital institutions.

    [1]
    Zhou H T, Zhang Z G. The impact of governmental R&D investment on business technological innovation decision behavior-evidence from the micro-data of Guangdong enterprises. China Soft Science, 2016 (6): 110–120. doi: 10.3969/j.issn.1002-9753.2016.06.011
    [2]
    Lin M X, Zhang Z W, He J. R&D support policy choice, institutional environment and enterprise R&D investment. Shanghai Journal of Economics, 2018, 9: 35–48. doi: 10.19626/j.cnki.cn31-1163/f.2018.09.005
    [3]
    Zuo Z G, Shi F Z, Tan G Q. Does state-owned venture capital play a “crowding-in” role? An empirical research based on certification mechanism. Journal of Finance and Economics, 2017, 43 (12): 17–29. doi: 10.16538/j.cnki.jfe.2017.12.002
    [4]
    Wang J, Wu H Q, Zhang C, et al. The evaluation mechanism and influencing factors of profitability of sci-tech innovation enterprises. Studies in Science of Science, 2020, 38 (1): 124–132. doi: 10.16192/j.cnki.1003-2053.2020.01.015
    [5]
    Huang L C, Teng X D, Miao H, et al. The evaluation of balance between innovation incentives and responsible innovation in innovation policy. China Soft Science, 2018 (5): 25–38. doi: 10.3969/j.issn.1002-9753.2018.05.004
    [6]
    Huang J Y, Cao Y F, Zhou H L, et al. Optimal investment timing and scale choice of overseas oil projects: A real option approach. Energies, 2018, 11 (11): 2954. doi: 10.3390/en11112954
    [7]
    Wang Y C, Qian Y C. Market reaction to tender offers: Insights from China. JUSTC, 2021, 51 (12): 894–911. doi: 10.52396/just-2021-0172
    [8]
    Dai X Y, Chapman G, Shen H. Late-stage venture capital and firm performance: Evidence from small and medium-sized enterprises in China. Applied Economics, 2022, 54 (20): 2356–2372. doi: 10.1080/00036846.2021.1989370
    [9]
    Wang X P, Qie S Y. Research on the timing of CCS investment in supply chain under carbon emission trading. Journal of Industrial Engineering and Engineering Management, 2020, 34 (2): 124–130. doi: 10.13587/j.cnki.jieem.2020.02.013
    [10]
    Wang G G, Xie F J, Jia Y. Reconsider incentive mechanism of R&D subsidy policy-based on exploration for external financing incentive mechanism. Industrial Economics, 2017 (2): 60–78. doi: 10.19581/j.cnki.ciejournal.2017.02.005
    [11]
    Li J X, Wen X N. Research on the relationship between the allocation efficiency and influencing factors of China’s science and technology finance. China Soft Science, 2019 (1): 164–174. doi: 10.3969/j.issn.1002-9753.2019.01.014
    [12]
    Sendstad L H, Chronopoulos M. Sequential investment in renewable energy technologies under policy uncertainty. Energy Policy, 2020, 137: 111152. doi: 10.1016/j.enpol.2019.111152
    [13]
    Zhou Y, Pan Y. Subsidization and tax reduction: The policy choice of new energy vehicles under the constraints of transaction costs. Journal of Management World, 2019, 35 (10): 133–149. doi: 10.19744/j.cnki.11-1235/f.2019.0137
    [14]
    Agénor P R, Neanidis K C. Innovation, public capital, and growth. Journal of Macroeconomics, 2015, 44: 252–275. doi: 10.1016/j.jmacro.2015.03.003
    [15]
    Lin B Q, Luan R R. Do government subsidies promote efficiency in technological innovation of China’s photovoltaic enterprises? Journal of Cleaner Production, 2020, 254: 120108. doi: 10.1016/j.jclepro.2020.120108
    [16]
    Chen S L, Huang Z H, Drakeford B M, et al. Lending Interest rate, loaning scale, and government subsidy scale in green innovation. Energies, 2019, 12 (23): 4431. doi: 10.3390/en12234431
    [17]
    Alperovych Y, Hübner G, Lobet F. How does governmental versus private venture capital backing affect a firm’s efficiency? Evidence from Belgium. Journal of Business Venturing, 2015, 30 (4): 508–525. doi: 10.1016/j.jbusvent.2014.11.001
    [18]
    Jung S H, Feng T. Government subsidies for green technology development under uncertainty. European Journal of Operational Research, 2020, 286 (2): 726–739. doi: 10.1016/j.ejor.2020.03.047
    [19]
    Redonda A, Diaz de Sarralde S, Hallerberg M, et al. Tax expenditure and the treatment of tax incentives for investment. Economics, 2019, 13 (1): 20190012. doi: 10.5018/economics-ejournal.ja.2019-12
    [20]
    Zhao L M, Chen Y Q. Optimal subsidies for green products: A maximal policy benefit perspective. Symmetry, 2019, 11 (1): 63. doi: 10.3390/sym11010063
    [21]
    Zhao A W, Guan H J. Simulation and analysis of optimal policy combination for incentive of enterprise environmental technology innovation. Journal of Management Science, 2018, 31 (6): 104–116. doi: 10.3969/j.issn.1672-0334.2018.06.008
    [22]
    Xu Y, Meng Y P. Evolution game between government and port enterprises under mandatory emission reduction. JUSTC, 2019, 49 (9): 762–772. doi: 10.3969/j.issn.0253-2778.2019.09.009
    [23]
    Liang X, Fu Y. Study on the supply side evolutionary game of green building under the mechanism of government dynamic reward and punishment. Chinese Journal of Management Science, 2020, 29 (2): 184–194. doi: 10.16381/j.cnki.issn1003-207x.2018.0917
    [24]
    Liu C Y, Xia T S, Yu T. Research on evolutionary game of government regulation and production of manufacturer in the angle of low carbon. Chinese Journal of Management Science, 2019, 27 (11): 96–106. doi: 10.16381/j.cnki.issn1003-207x.2019.11.010
    [25]
    Zhang H J, Yu H Y, Li C Y. Incentive contract design and optimization of government subsidies policy in the closed-loop supply chain. Chinese Journal of Management Science, 2016, 24 (8): 71–78. doi: 10.16381/j.cnki.issn1003-207x.2016.08.009
    [26]
    Wu B H T, Mazur M. Managerial incentives and investment policy in family firms: Evidence from a structural analysis. Journal of Small Business Management, 2018, 56 (4): 618–657. doi: 10.1111/jsbm.12308
    [27]
    Abbiati L, Antinyan A, Corazzini L. A survey experiment on information, taxpayer preferences, and perceived adequacy of the tax burden. Heliyon, 2020, 6 (3): e03576. doi: 10.1016/j.heliyon.2020.e03576
    [28]
    Lukas E, Thiergart S. The interaction of debt financing, cash grants and the optimal investment policy under uncertainty. European Journal of Operational Research, 2019, 276 (1): 284–299. doi: 10.1016/j.ejor.2018.12.036
    [29]
    Wang W Q, Ma H J. Technology proximity, R&D investment and innovation performance in technology mergers and acquisitions-from a perspective of corporate life cycle. Management Review, 2020, 32 (6): 104–113. doi: 10.14120/j.cnki.cn11-5057/f.20191127.008
    [30]
    Ma S, Gao L M, Zhao G H. Bootstrap-DEA model oriented study on the theory of enterprise life cycle phase. China Soft Science, 2019 (11): 176–182. doi: 10.3969/j.issn.1002-9753.2019.11.017
    [31]
    Chang Y N, Wang S J. Profit allocation of PPP project from the perspective of incentives: The case of Chinese enterprises’ investment in the infrastructure projects of GMS countries under the support of Asian Infrastructure Investment Bank. Management Review, 2018, 30 (11): 257–265. doi: 10.14120/j.cnki.cn11-5057/f.2018.11.024
    [32]
    Li B X, Qiao J M, Niu X Q, et al. Game analysis of managers’ selection of long or short-term investment project from the perspective of managerial entrenchment. Management Review, 2019, 31 (1): 197–205. doi: 10.14120/j.cnki.cn11-5057/f.2019.01.018
    [33]
    Wong K P. On the neutrality of debt in the investment intensity. Annals of Finance, 2010, 6: 335–356. doi: 10.1007/s10436-009-0137-7
    [34]
    Danielova A, Sarkar S. The effect of leverage on the tax-cut versus investment-subsidy argument. Review of Financial Economics, 2011, 20 (4): 123–129. doi: 10.1016/j.rfe.2011.10.001
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