Government Venture Capital, Institutional Patching, and Corporate Location Decisions: Evidence from China

During the process of cross-regional expansion, firms may face constraints such as financing constraints and institutional frictions, which may reduce their willingness to enter new markets and undermine regions’ investment attractiveness. This study examines how government venture capital (GVC), as a government-backed market-oriented investment mechanism, alleviates these constraints in firms’ location choices and enhances cities’ attractiveness to cross-regional investment. Based on the institutional-patching perspective, this study analyzes the mechanisms through which GVC enhances cities’ attractiveness to cross-regional investment by attracting private investment, optimizing the entrepreneurial ecosystem, and promoting the agglomeration of high-technology firms. Using panel data from 297 Chinese cities during 2008–2024, combined with government venture capital investment events and data on subsidiaries established by non-local listed firms, this study conducts empirical tests. The results show that GVC significantly enhances cities’ attractiveness to cross-regional investment, and this conclusion remains robust after a series of robustness checks, including double machine learning models. Mechanism analysis indicates that GVC primarily works by promoting the entry of private venture capital, improving the entrepreneurial ecosystem, and facilitating the agglomeration of high-technology firms. Further analysis reveals that the investment-attraction effect of GVC is stronger in cities with lower market segmentation, high-speed rail coverage, and lower perceived policy uncertainty, and becomes more pronounced after the 2015 reform encouraging government–private co-investment. This study extends GVC research beyond invested firms by revealing how government-backed capital shapes non-recipient firms’ location choices and providing implications for GVC operations.