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Venture Capital and Industrial ''Innovation''

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  • Hirukawa, Masayuki
  • Ueda, Masako

Abstract

For the sample period of 1965-1992, Kortum and Lerner (2000) find that venture capital (VC) investments have a positive impact on patent count at industry level, and this impact is larger than that of R&D expenditures. We confirm that this positive impact continued to be present and became even stronger in late 90s during which VC industry experienced an unprecedented growth. We then proceed to study if this positive impact of VC is also present on productivity growth, which is a measure of innovation alternative to patent count. Unlike the impact on patent count, we do not find that VC investment affects total factor productivity growth. We do find that VC investment is positively associated with labor productivity but this positive impact is originated from the technology substitution from labor to other productive inputs such as energy and material. Therefore, our finding suggests that, at industry level, VC investment increases the patent propensity but may not necessarily improve the productive efficiency. Various interpretations are offered why this may be the case.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7089.

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Date of creation: Dec 2008
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Handle: RePEc:cpr:ceprdp:7089

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Keywords: Factor Substitution; Innovation; Patent; Productivity; Venture Capital;

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References

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Citations

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Cited by:
  1. Douhan, Robin & Norbäck, Pehr-Johan & Persson, Lars, 2010. "Entrepreneurial Innovations, Entrepreneurship Policy and Globalization," CEPR Discussion Papers 7752, C.E.P.R. Discussion Papers.
  2. Michael Peneder, 2010. "The Impact of Venture Capital on Innovation Behaviour and Firm Growth," WIFO Working Papers 363, WIFO.
  3. Croce, Annalisa & Martí, José & Murtinu, Samuele, 2013. "The impact of venture capital on the productivity growth of European entrepreneurial firms: ‘Screening’ or ‘value added’ effect?," Journal of Business Venturing, Elsevier, vol. 28(4), pages 489-510.
  4. Ferreira, Daniel & Manso, Gustavo & Silva, André C., 2010. "Incentives to Innovate and the Decision to Go Public or Private," CEPR Discussion Papers 7750, C.E.P.R. Discussion Papers.
  5. Feldmann, Horst, 2010. "Venture Capital Availability and Labor Market Performance in Industrial Countries : Evidence Based on Survey Data," Department of Economics Working Papers 18104, University of Bath, Department of Economics.
  6. Da Rin, M. & Hellmann, T. & Puri, M.L., 2011. "A Survey of Venture Capital Research," Discussion Paper 2011-111, Tilburg University, Center for Economic Research.
  7. Bozkaya, Ant & Kerr, William R., 2013. "Labor regulations and European venture capital," Research Discussion Papers 30/2013, Bank of Finland.
  8. Popov, Alexander & Roosenboom, Peter, 2013. "Venture capital and new business creation," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 4695-4710.
  9. Fabrizi, Simona & Lippert, Steffen & Norbäck, Pehr-Johan & Persson, Lars, 2011. "Venture Capital, Patenting, and Usefulness of Innovations," CEPR Discussion Papers 8392, C.E.P.R. Discussion Papers.
  10. Cuneyt Orman, 2010. "Organization of Innovation and Capital Markets (Teknolojik Yeniligin Orgutlenmesi ve Sermaye Piyasalari)," Working Papers 1010, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  11. Hirukawa, Masayuki & Ueda, Masako, 2008. "Venture Capital and Innovation: Which is First?," CEPR Discussion Papers 7090, C.E.P.R. Discussion Papers.
  12. Arqué-Castells, Pere, 2012. "How venture capitalists spur invention in Spain: Evidence from patent trajectories," Research Policy, Elsevier, vol. 41(5), pages 897-912.
  13. Orman, Cuneyt, 2008. "Organization of Innovation and Capital Markets," MPRA Paper 22848, University Library of Munich, Germany, revised 21 May 2010.
  14. Matthew Beacham & Bipasa Datta, 2013. "Who Becomes the Winner? Effects of Venture Capital on Firms’ Innovative Incentives - A Theoretical Investigation," Discussion Papers 13/33, Department of Economics, University of York.

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