Abstract
International VC investment plays a key role in emerging markets. It can affect the operating and financial performance of invested companies. However, whether and how it can affect other value-added benefits, such as innovation performance, is largely unknown. In this study, I examine the impact of international VC investment on the innovation performance of invested companies in China. I use hand-collected administrative data and find that international VC investment is worse at increasing innovation volume compared with domestic VC investment, but it can enhance innovation radicality. This is partly because international VC investment can bring novel knowledge but also comes with significant recombination costs. The results are robust to controlling for the endogeneity of international VC investment by using the matching method, the instrumental variable approach and the difference-in-differences process. This paper sheds light on entrepreneurial finance and innovation literature by illustrating the benefits of international VC investment in innovation.