We investigate the influence of government grants, venture capital (VC), and private equity (PE) on innovation. Grounded in the logic of information economics and the knowledge-based view, this study takes a fine-grained perspective by examining innovation inputs (R&D), and
innovation outputs (patents), and the quality of outputs (patent citations). We analyze a crosssectional sample of 436 Australian newly public companies. We find that grants are associated with innovation inputs, outputs, and the quality thereof. VCs increase innovation inputs whereas PEs increase innovation outputs and the quality thereof. Importantly, grants encourage VC investment but not PE investment. Grants and VC/PE backing are generally complements regarding innovation except grants substitute for VC backing on innovation inputs. We also investigate the attributes of VC/PEs that are associated with innovation.
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