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Asymmetric information and deal selection: evidence from the Italian venture capital market

Author

Listed:
  • Francesco Bollazzi

    (Liuc Carlo Cattaneo University)

  • Giuseppe Risalvato

    (Liuc Carlo Cattaneo University)

  • Claudio Venezia

    (KPMG Advisory)

Abstract

The aim of this study is to show how information asymmetry affects the venture capital (VC) deal selection process in the Italian capital market. In this paper, the authors want to analyse how venture capitalists (VCs) choose which new companies to sustain. In the absence of information about these start-ups, investors encounter difficulties when evaluating the quality of new firms. VCs can only assess the value of observable characteristics, relying on a background affected by information asymmetries, such as the entrepreneur and the management team, patents, and the presence of strategic alliances. The authors use information collected in a dataset built on information contained in the Bureau van Dijk database, completed with data collected through a survey sent to VC funds. The period under observation is between 2012 and 2017. The dataset is composed of 150 observations, and represents a significant sample of the Italian market. The results show that there is a positive relationship between management education, the management team’s international experience, number of patents and the likelihood of receiving financing from VCs. This reasoning allows for highlighting the importance of matching the business idea with the investment decision made between VCs and new enterprises, especially when the better-informed part, the firms, can send a signal of quality to the less-informed part, the VCs.

Suggested Citation

  • Francesco Bollazzi & Giuseppe Risalvato & Claudio Venezia, 2019. "Asymmetric information and deal selection: evidence from the Italian venture capital market," International Entrepreneurship and Management Journal, Springer, vol. 15(3), pages 721-732, September.
    • Handle: RePEc:spr:intemj:v:15:y:2019:i:3:d:10.1007_s11365-018-0539-y
    DOI: 10.1007/s11365-018-0539-y
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    References listed on IDEAS

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    Cited by:

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    2. Kung-Cheng Ho & Hung-Yi Huang & Shengnan Liu, 2022. "Information disclosure ratings and managerial short-termism: An empirical investigation of the Chinese stock market," International Entrepreneurship and Management Journal, Springer, vol. 18(1), pages 349-381, March.
    3. Andrea Venturelli & Salvatore Principale & Lorenzo Ligorio & Simona Cosma, 2021. "Walking the talk in family firms. An empirical investigation of CSR communication and practices," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 28(1), pages 497-510, January.

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    More about this item

    Keywords

    Asymmetric information; Investments decision; Venture capital; Start-up;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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