IDEAS home Printed from https://ideas.repec.org/p/hhs/ratioi/0288.html
   My bibliography  Save this paper

Direct and Indirect Effects of Private- and Government Sponsored Venture Capital

Author

Listed:
  • Engberg, Erik

    (The Ratio Institute)

  • Halvarsson, Daniel

    (The Ratio Institute)

  • Tingvall, Patrik

    (Södertörn University, The Ratio Institute and the Swedish Agency for Growth Policy Analysis)

Abstract

This paper studies the real effects of venture capital on targeted firms. Specifically, using a unique dataset with comprehensive information on private- and governmental venture capital investments, we examine the effects of such investments on firms' sales, employment and investments in physical capital. The results suggest that both private and public venture capital boost firm sales two to three years after the investment. The sales increase can, in turn, partially be traced to an investment effect, and partially to increased efficiency, whereas no employment effects are found. Finally, our findings suggest that government investors are more prone than private VC firms to make follow-up investments in stagnating non-growing firms.

Suggested Citation

  • Engberg, Erik & Halvarsson, Daniel & Tingvall, Patrik, 2017. "Direct and Indirect Effects of Private- and Government Sponsored Venture Capital," Ratio Working Papers 288, The Ratio Institute.
    • Handle: RePEc:hhs:ratioi:0288
    as

    Download full text from publisher

    File URL: http://ratio.se/app/uploads/2017/04/ee_dh_pt_direct_and_indirect_effects_of_venture_capital_288.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Francisco J. Buera & Joseph P. Kaboski & Yongseok Shin, 2011. "Finance and Development: A Tale of Two Sectors," American Economic Review, American Economic Association, vol. 101(5), pages 1964-2002, August.
    2. Bronwyn Hall & Alessandro Maffioli, 2008. "Evaluating the impact of technology development funds in emerging economies: evidence from Latin America," The European Journal of Development Research, Taylor and Francis Journals, vol. 20(2), pages 172-198.
    3. Alperovych, Yan & Hübner, Georges & Lobet, Fabrice, 2015. "How does governmental versus private venture capital backing affect a firm's efficiency? Evidence from Belgium," Journal of Business Venturing, Elsevier, vol. 30(4), pages 508-525.
    4. Zvi Griliches & Jacques Mairesse, 1995. "Production Functions: The Search for Identification," NBER Working Papers 5067, National Bureau of Economic Research, Inc.
    5. Bertoni, Fabio & Tykvová, Tereza, 2015. "Does governmental venture capital spur invention and innovation? Evidence from young European biotech companies," Research Policy, Elsevier, vol. 44(4), pages 925-935.
    6. Colombo, Massimo G. & Grilli, Luca, 2010. "On growth drivers of high-tech start-ups: Exploring the role of founders' human capital and venture capital," Journal of Business Venturing, Elsevier, vol. 25(6), pages 610-626, November.
    7. N. Berger, Allen & F. Udell, Gregory, 1998. "The economics of small business finance: The roles of private equity and debt markets in the financial growth cycle," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 613-673, August.
    8. Cumming, Douglas J. & MacIntosh, Jeffrey G., 2006. "Crowding out private equity: Canadian evidence," Journal of Business Venturing, Elsevier, vol. 21(5), pages 569-609, September.
    9. Bronwyn Hall & Benoit Mulkay and Jacques Mairesse, 2001. "Firm Level Investment and R and D in France and the United States: A Comparison," Economics Series Working Papers 2001-W02, University of Oxford, Department of Economics.
    10. James A. Brander & Qianqian Du & Thomas Hellmann, 2015. "The Effects of Government-Sponsored Venture Capital: International Evidence," Review of Finance, European Finance Association, vol. 19(2), pages 571-618.
    11. Benoît Mulkay & Bronwyn H, Hall & Jacques Mairesse, 2000. "Firm Level Investment and R&D in France and the United States : A Comparison," Working Papers 2000-49, Center for Research in Economics and Statistics.
    12. Alan C. Acock, 2013. "Discovering Structural Equation Modeling Using Stata," Stata Press books, StataCorp LP, number dsemus, March.
    13. Bronwyn Hall & Alessandro Maffioli, 2008. "Evaluating the impact of technology development funds in emerging economies: evidence from Latin America," The European Journal of Development Research, Taylor and Francis Journals, vol. 20(2), pages 172-198.
    14. David B. Audretsch & Albert N. Link & John T. Scott, 2013. "Public/private technology partnerships: evaluating SBIR-supported research," Chapters, in: Public Support of Innovation in Entrepreneurial Firms, chapter 5, pages 91-104, Edward Elgar Publishing.
    15. Massimo Colombo & Douglas Cumming & Silvio Vismara, 2016. "Governmental venture capital for innovative young firms," The Journal of Technology Transfer, Springer, vol. 41(1), pages 10-24, February.
    16. James A. Brander & Edward Egan & Thomas F. Hellmann, 2010. "Government Sponsored versus Private Venture Capital: Canadian Evidence," NBER Chapters, in: International Differences in Entrepreneurship, pages 275-320, National Bureau of Economic Research, Inc.
    17. Groh, Alexander Peter & von Liechtenstein, Heinrich & Lieser, Karsten, 2010. "The European Venture Capital and Private Equity country attractiveness indices," Journal of Corporate Finance, Elsevier, vol. 16(2), pages 205-224, April.
    18. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    19. Iacus, Stefano & King, Gary & Porro, Giuseppe, 2009. "cem: Software for Coarsened Exact Matching," Journal of Statistical Software, Foundation for Open Access Statistics, vol. 30(i09).
    20. Matthew Blackwell & Stefano Iacus & Gary King & Giuseppe Porro, 2009. "cem: Coarsened exact matching in Stata," Stata Journal, StataCorp LP, vol. 9(4), pages 524-546, December.
    21. John Armour & Douglas Cumming, 2006. "The legislative road to Silicon Valley," Oxford Economic Papers, Oxford University Press, vol. 58(4), pages 596-635, October.
    22. Hijzen, Alexander & Swaim, Paul, 2010. "Offshoring, labour market institutions and the elasticity of labour demand," European Economic Review, Elsevier, vol. 54(8), pages 1016-1034, November.
    23. Josh Lerner, 2010. "The future of public efforts to boost entrepreneurship and venture capital," Small Business Economics, Springer, vol. 35(3), pages 255-264, October.
    24. Thomas J. Chemmanur & Karthik Krishnan & Debarshi K. Nandy, 2011. "How Does Venture Capital Financing Improve Efficiency in Private Firms? A Look Beneath the Surface," Review of Financial Studies, Society for Financial Studies, vol. 24(12), pages 4037-4090.
    25. Bai-Yang Liu & Bong Joon Yoon, 2000. "China¡¯s Economic Reform and Regional Productivity Differentials," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 25(2), pages 23-41, December.
    26. Buzzacchi, Luigi & Scellato, Giuseppe & Ughetto, Elisa, 2013. "The investment strategies of publicly sponsored venture capital funds," Journal of Banking & Finance, Elsevier, vol. 37(3), pages 707-716.
    27. 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.
    28. Josh Lerner, 2002. "When Bureaucrats Meet Entrepreneurs: The Design of Effective "Public Venture Capital" Programmes," Economic Journal, Royal Economic Society, vol. 112(477), pages 73-84, February.
    29. Grilli, Luca & Murtinu, Samuele, 2014. "Government, venture capital and the growth of European high-tech entrepreneurial firms," Research Policy, Elsevier, vol. 43(9), pages 1523-1543.
    30. Paul Gompers & Josh Lerner, 2003. "Short-Term America Revisited? Boom and Bust in the Venture Capital Industry and the Impact on Innovation," NBER Chapters, in: Innovation Policy and the Economy, Volume 3, pages 1-28, National Bureau of Economic Research, Inc.
    31. Guerini, Massimiliano & Quas, Anita, 2016. "Governmental venture capital in Europe: Screening and certification," Journal of Business Venturing, Elsevier, vol. 31(2), pages 175-195.
    32. Leleux, Benoit & Surlemont, Bernard, 2003. "Public versus private venture capital: seeding or crowding out? A pan-European analysis," Journal of Business Venturing, Elsevier, vol. 18(1), pages 81-104, January.
    33. Iacus, Stefano M. & King, Gary & Porro, Giuseppe, 2011. "Multivariate Matching Methods That Are Monotonic Imbalance Bounding," Journal of the American Statistical Association, American Statistical Association, vol. 106(493), pages 345-361.
    34. Thomas Hellmann & Manju Puri, 2002. "Venture Capital and the Professionalization of Start‐Up Firms: Empirical Evidence," Journal of Finance, American Finance Association, vol. 57(1), pages 169-197, February.
    35. Adam B. Jaffe & Josh Lerner & Scott Stern, 2003. "Introduction to "Innovation Policy and the Economy, Volume 3"," NBER Chapters, in: Innovation Policy and the Economy, Volume 3, pages -3, National Bureau of Economic Research, Inc.
    36. Davila, Antonio & Foster, George & Gupta, Mahendra, 2003. "Venture capital financing and the growth of startup firms," Journal of Business Venturing, Elsevier, vol. 18(6), pages 689-708, November.
    37. Samuel Kortum & Josh Lerner, 2000. "Assessing the Contribution of Venture Capital to Innovation," RAND Journal of Economics, The RAND Corporation, vol. 31(4), pages 674-692, Winter.
    38. Iacus, Stefano M. & King, Gary & Porro, Giuseppe, 2012. "Causal Inference without Balance Checking: Coarsened Exact Matching," Political Analysis, Cambridge University Press, vol. 20(1), pages 1-24, January.
    39. Adam B. Jaffe & Josh Lerner & Scott Stern (ed.), 2003. "Innovation Policy and the Economy, Volume 3," MIT Press Books, The MIT Press, edition 1, volume 3, number 026260051x, December.
    40. Fabio Bertoni & Massimo Colombo & Luca Grilli, 2013. "Venture capital investor type and the growth mode of new technology-based firms," Small Business Economics, Springer, vol. 40(3), pages 527-552, April.
    41. Ho, Daniel E. & Imai, Kosuke & King, Gary & Stuart, Elizabeth A., 2007. "Matching as Nonparametric Preprocessing for Reducing Model Dependence in Parametric Causal Inference," Political Analysis, Cambridge University Press, vol. 15(3), pages 199-236, July.
    42. Douglas Cumming & Sofia Johan, 2016. "Venture’s economic impact in Australia," The Journal of Technology Transfer, Springer, vol. 41(1), pages 25-59, February.
    43. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
    44. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(3), pages 488-500.
    45. Chih-Nan Chen & Tai-Hsin Huang & Chien-Hsiu Lin, 2013. "Financing Decision and Productivity Growth for the Venture Capital Industry in Taiwan," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 16(02), pages 1-19.
    46. Scott J. Wallsten, 2000. "The Effects of Government-Industry R&D Programs on Private R&D: The Case of the Small Business Innovation Research Program," RAND Journal of Economics, The RAND Corporation, vol. 31(1), pages 82-100, Spring.
    47. 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.
    48. Adam B. Jaffe & Josh Lerner & Scott Stern, 2003. "Innovation Policy and the Economy, Volume 3," NBER Books, National Bureau of Economic Research, Inc, number jaff03-1, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kärnä, Anders & Karlsson, Johan & Engberg, Erik & Svensson, Peter, 2020. "Political Failure: A Missing Piece in Innovation Policy Analysis," Working Paper Series 1334, Research Institute of Industrial Economics, revised 21 Apr 2022.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Erik Engberg & Patrik Gustavsson Tingvall & Daniel Halvarsson, 2021. "Direct and indirect effects of private- and government-sponsored venture capital," Empirical Economics, Springer, vol. 60(2), pages 701-735, February.
    2. Thomas Standaert & Sophie Manigart, 2018. "Government as fund-of-fund and VC fund sponsors: effect on employment in portfolio companies," Small Business Economics, Springer, vol. 50(2), pages 357-373, February.
    3. Annalisa Croce & Jose Martí & Carmelo Reverte, 2019. "The role of private versus governmental venture capital in fostering job creation during the crisis," Small Business Economics, Springer, vol. 53(4), pages 879-900, December.
    4. Jianjun Xu & Lijie Yu & Rakesh Gupta, 2020. "Evaluating the Performance of the Government Venture Capital Guiding Fund Using the Intuitionistic Fuzzy Analytic Hierarchy Process," Sustainability, MDPI, vol. 12(17), pages 1-24, August.
    5. Alperovych, Yan & Hübner, Georges & Lobet, Fabrice, 2015. "How does governmental versus private venture capital backing affect a firm's efficiency? Evidence from Belgium," Journal of Business Venturing, Elsevier, vol. 30(4), pages 508-525.
    6. Guerini, Massimiliano & Quas, Anita, 2016. "Governmental venture capital in Europe: Screening and certification," Journal of Business Venturing, Elsevier, vol. 31(2), pages 175-195.
    7. Suchard, Jo-Ann & Humphery-Jenner, Mark & Cao, Xiaping, 2021. "Government ownership and Venture Capital in China," Journal of Banking & Finance, Elsevier, vol. 129(C).
    8. Bertoni, Fabio & Martí, Jose & Reverte, Carmelo, 2019. "The impact of government-supported participative loans on the growth of entrepreneurial ventures," Research Policy, Elsevier, vol. 48(1), pages 371-384.
    9. Anita Quas & Jose Martí & Carmelo Reverte, 2021. "What money cannot buy: a new approach to measure venture capital ability to add non-financial resources," Small Business Economics, Springer, vol. 57(3), pages 1361-1382, October.
    10. Soleimani Dahaj, Arash & Cozzarin, Brian Paul, 2019. "Government venture capital and cross-border investment," Global Finance Journal, Elsevier, vol. 41(C), pages 113-127.
    11. Laura Abrardi & Annalisa Croce & Elisa Ughetto, 2019. "The dynamics of switching between governmental and independent venture capitalists: theory and evidence," Small Business Economics, Springer, vol. 53(1), pages 165-188, June.
    12. Mark R. Ayoub & Sandra Gottschalk & Bettina Müller, 2017. "Impact of public seed-funding on academic spin-offs," The Journal of Technology Transfer, Springer, vol. 42(5), pages 1100-1124, October.
    13. Grilli, Luca & Murtinu, Samuele, 2014. "Government, venture capital and the growth of European high-tech entrepreneurial firms," Research Policy, Elsevier, vol. 43(9), pages 1523-1543.
    14. Munari, Federico & Toschi, Laura, 2015. "Assessing the impact of public venture capital programmes in the United Kingdom: Do regional characteristics matter?," Journal of Business Venturing, Elsevier, vol. 30(2), pages 205-226.
    15. Valérie Revest & Alessandro Sapio, 2012. "Financing technology-based small firms in Europe: what do we know?," Small Business Economics, Springer, vol. 39(1), pages 179-205, July.
    16. Gustavsson Tingvall, Patrik & Videnord, Josefin, 2017. "Regional Effects of Publicly Sponsored R&D Grants on SME Performance," Ratio Working Papers 289, The Ratio Institute.
    17. Pavlova, Elitsa & Signore, Simone, 2019. "The European venture capital landscape: an EIF perspective. Volume V: The economic impact of VC investments supported by the EIF," EIF Working Paper Series 2019/55, European Investment Fund (EIF).
    18. Alperovych, Yan & Groh, Alexander & Quas, Anita, 2020. "Bridging the equity gap for young innovative companies: The design of effective government venture capital fund programs," Research Policy, Elsevier, vol. 49(10).
    19. Zhang, Yuejia & Mayes, David Geoffrey, 2018. "The performance of governmental venture capital firms: A life cycle perspective and evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 48(C), pages 162-185.
    20. Colombo, Massimo G. & D’Adda, Diego & Pirelli, Lorenzo H., 2016. "The participation of new technology-based firms in EU-funded R&D partnerships: The role of venture capital," Research Policy, Elsevier, vol. 45(2), pages 361-375.

    More about this item

    Keywords

    Venture capital; Start-ups; Firm growth; Investments; Governmental venture capital;
    All these keywords.

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • H44 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Goods: Mixed Markets
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hhs:ratioi:0288. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Martin Korpi (email available below). General contact details of provider: https://edirc.repec.org/data/ratiose.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.