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The investment strategies of publicly sponsored venture capital funds

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  • Buzzacchi, Luigi
  • Scellato, Giuseppe
  • Ughetto, Elisa
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    Abstract

    This paper investigates the effects of public ownership on the investment strategy of hybrid VC funds. We exploit a unique dataset containing data for all of the venture capital funds in Europe that received financial support from the European Investment Fund (EIF) during the years 1998–2007. The dataset includes 179 VC funds that invested in 2482 companies. We find that the level of public ownership shows a weak negative correlation with the likelihood of observing a write-off and that a higher public share is associated with a longer duration for the investment. The latter effect is more relevant for those investments that generate intermediate financial returns. The results are robust to the introduction of controls at the target firm level and for financial market conditions.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 37 (2013)
    Issue (Month): 3 ()
    Pages: 707-716

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    Handle: RePEc:eee:jbfina:v:37:y:2013:i:3:p:707-716

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    Web page: http://www.elsevier.com/locate/jbf

    Related research

    Keywords: Public venture capital; Duration; Write-off;

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    References

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    1. John Armour & Douglas Cumming, 2006. "The legislative road to Silicon Valley," Oxford Economic Papers, Oxford University Press, vol. 58(4), pages 596-635, October.
    2. Douglas Cumming, 2008. "Contracts and Exits in Venture Capital Finance," Review of Financial Studies, Society for Financial Studies, vol. 21(5), pages 1947-1982, September.
    3. Josh Lerner, 2002. "When Bureaucrats Meet Entrepreneurs: The Design of Effective "Public Venture Capital" Programmes," Economic Journal, Royal Economic Society, vol. 112(477), pages F73-F84, February.
    4. Marco Da Rin & Giovanna Nicodano & Alessandro Sembenelli, 2004. "Public Policy and the Creation of Active Venture Capital Markets," Working Papers 270, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    5. Levine, Ross, 1996. "Financial development and economic growth : views and agenda," Policy Research Working Paper Series 1678, The World Bank.
    6. Lerner, Josh, 1999. "The Government as Venture Capitalist: The Long-Run Impact of the SBIR Program," The Journal of Business, University of Chicago Press, vol. 72(3), pages 285-318, July.
    7. Cumming, Douglas J. & MacIntosh, Jeffrey G., 2001. "Venture capital investment duration in Canada and the United States," Journal of Multinational Financial Management, Elsevier, vol. 11(4-5), pages 445-463, December.
    8. Devenow, Andrea & Welch, Ivo, 1996. "Rational herding in financial economics," European Economic Review, Elsevier, vol. 40(3-5), pages 603-615, April.
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    17. Cumming, Douglas, 2007. "Government policy towards entrepreneurial finance: Innovation investment funds," Journal of Business Venturing, Elsevier, vol. 22(2), pages 193-235, March.
    18. Elisa Ughetto, 2009. "Industrial districts and financial constraints to innovation," International Review of Applied Economics, Taylor & Francis Journals, vol. 23(5), pages 597-624.
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