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The causes and consequences of venture capital stage financing

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  • Tian, Xuan

Abstract

This paper examines the causes and consequences of venture capital (VC) stage financing. Using information about the physical location of an entrepreneurial firm and the geographic distance between the VC investor and the firm, I show that VC investors located farther away from an entrepreneurial firm tend to finance the firm using a larger number of financing rounds, shorter durations between successive rounds, and investing a smaller amount in each round. However, VC investors' propensity to stage is independent of whether the firm is located in a close-knit community. I also find that VC staging positively affects the entrepreneurial firm's propensity to go public, operating performance in the initial public offering (IPO) year, and post-IPO survival rate, but only if the firm is located far away from the VC investor. However, the effect of VC staging on entrepreneurial firm's performance is independent of whether it is located in a close-knit community. The findings are robust to a variety of alternative proximity measures, instrumental variables, and econometric approaches for dealing with endogeneity problems.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Financial Economics.

Volume (Year): 101 (2011)
Issue (Month): 1 (July)
Pages: 132-159

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Handle: RePEc:eee:jfinec:v:101:y:2011:i:1:p:132-159

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Web page: http://www.elsevier.com/locate/inca/505576

Related research

Keywords: Stage financing Venture capital Monitoring Hold-up Learning;

References

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Citations

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Cited by:
  1. Dominique Dufour & Eric Nasica & Dominique Torre, 2013. "Syndication in private equity industry: comparing the strategies of independent and captive venture capitalists," Working Papers halshs-00853695, HAL.
  2. Hoenen, Sebastian & Kolympiris, Christos & Schoenmakers, Wilfred & Kalaitzandonakes, Nicholas, 2014. "The diminishing signaling value of patents between early rounds of venture capital financing," Research Policy, Elsevier, vol. 43(6), pages 956-989.
  3. Aleksandar Bradic, 2012. "The Role of Social Feedback in Financing of Technology Ventures," Papers 1301.2196, arXiv.org.
  4. Colombo, Massimo G. & Cumming, Douglas & Mohammadi, Ali & Rossi-Lamastra , Cristina & Wadhwa , Anu, 2014. "Open Business Models And Venture Capital Finance," Working Paper Series in Economics and Institutions of Innovation 347, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
  5. Dai, Na, 2011. "Monitoring via staging: Evidence from Private investments in public equity," Journal of Banking & Finance, Elsevier, vol. 35(12), pages 3417-3431.
  6. Schwienbacher, Armin, 2013. "The entrepreneur's investor choice: The impact on later-stage firm development," Journal of Business Venturing, Elsevier, vol. 28(4), pages 528-545.
  7. Chortareas, Georgios E. & Girardone, Claudia & Ventouri, Alexia, 2013. "Financial freedom and bank efficiency: Evidence from the European Union," Journal of Banking & Finance, Elsevier, vol. 37(4), pages 1223-1231.
  8. Humphery-Jenner, Mark & Suchard, Jo-Ann, 2013. "Foreign VCs and venture success: Evidence from China," Journal of Corporate Finance, Elsevier, vol. 21(C), pages 16-35.
  9. Christian Hopp & Christian Lukas, 2014. "Evaluation frequency and evaluator’s experience: the case of venture capital investment firms and monitoring intensity in stage financing," Journal of Management and Governance, Springer, vol. 18(2), pages 649-674, May.
  10. Da Rin, M. & Hellmann, T. & Puri, M.L., 2011. "A Survey of Venture Capital Research," Discussion Paper 2011-044, Tilburg University, Tilburg Law and Economic Center.

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