New ventures will inevitably face liability of newness during the process of growing up, as a result, it becomes entrepreneurs’ main responsibility to find ways to improve new ventures’ operating efficiency and maintain their survival. In order to obtain the scarce production resources, many start-ups have adopted non-productive investment such as rent-seeking behaviors, but whether it is an effective way for new ventures to solve problems they face in the growth dilemma through non-productive investment? It is still an unanswered question. Based on the data of World Bank （2005）, we use entertaining expenses per capita as the proxy variable of non-productive investment, and find that: First, non-productive investment has a significant inverted U-shaped effect on new ventures’ operating efficiency, which means that moderate input of non-productive investment is conducive to the improvement of business efficiency, while being too dependent on non-productive behaviors will contrarily reduce new ventures’ business efficiency. Second, the deterioration of the institutional environment will significantly lower the operating performance of start-up companies, and weaken the absolute value effect of non-productive investment. However, it has strengthened the marginal effect of non-productive investment, which means that with the continuous improvement of the institutional environment, the non-linear effect of non-productive investment to the operating efficiency will be gradually flattened, and its marginal effect will decrease significantly. Third, the nature of property right plays a moderator role between non-productive investment and new ventures’ performance. Compared with non-state-owned start-ups, state-owned start-ups are more sensitive to non-productive inputs, that is, for the same non-productive input, it will bring a greater positive effect to state-owned start-ups than to non-state-owned start-ups. As the non-productive investment increasing and exceeding a certain critical point, the same non-productive investment will have a greater negative impact on the performance of state-owned start-ups.
Does Non-productive Investment Improve New Ventures’ Growth?
Foreign Economics & Management Vol. 41, Issue 01, pp. 57 - 72 (2019) DOI:10.16538/j.cnki.fem.2019.01.005
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Cite this article
Yang Chan, He Xiaogang, Jia Zhihan. Does Non-productive Investment Improve New Ventures’ Growth?[J]. Foreign Economics & Management, 2019, 41(1): 57-72.