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Certification effect and capital structure determinants in venture-backed companies

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Author Info

  • Alvaro Tresierra Tanaka

    ()
    (Facultad de Económicas)

  • José Martí Pellón

    (Universidad Complutense de Madrid)

  • Marina Balboa

    (Universidad de Alicante)

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    Abstract

    This paper analyzes changes in capital structure behavior in a sample of Spanish venture capital (VC) backed companies that may occur after a VC investment due to the certification effect provided by VC investors. Our results show significant changes in determinants such as tangibility, size and profitability. Regarding tangibility and size, the entry of an external investor eases the need to have neither tangible assets nor a large size to obtain additional debt financing. About the effect of profitability, the investments made after the initial VC investment do affect short-term profitability, but this situation is not linked to the restricted access to external debt. We find that VC investors contribute to unlisted growing companies by attracting other long-term sources of funds to continue their growth process. Este artículo analiza los cambios que pueden ocurrir en la estructura de capital de empresas que reciben capital riesgo una vez que han recibido dicha financiación, y que podrían deberse al efecto certificación que proporcionan los inversores de capital riesgo. Los resultados muestran cambios significativos en algunas de las variables determinantes de la estructura de capital, como los activos tangibles, el tamaño de la empresa, y su rentabilidad. En cuanto a las dos primeras variables, la entrada del inversor de capital riesgo relaja la necesidad tanto de poseer un volumen de activos tangibles elevado, como la de tener un tamaño empresarial grande para obtener financiación adicional a través de deuda. En cuanto a la rentabilidad, y aunque las inversiones que se realizan una vez que se ha recibido la financiación de capital riesgo tienen un efecto sobre la rentabilidad empresarial a corto plazo, no se encuentra que ello impida el acceso a financiación adicional a través de deuda. El trabajo muestra que los inversores de capital riesgo contribuyen a que las empresas no cotizadas consigan financiación de otras fuentes a largo plazo que les permita continuar con su proceso de crecimiento.

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    File URL: http://www.ivie.es/downloads/docs/wpasec/wpasec-2012-02.pdf
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    Bibliographic Info

    Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie EC with number 2012-02.

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    Length: 40 pages
    Date of creation: Feb 2012
    Date of revision:
    Publication status: Published by Ivie
    Handle: RePEc:ivi:wpasec:2012-02

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    Related research

    Keywords: capital riesgo; estructura de capital; teoría del trade-off; valor añadido. capital structure determinants; venture capital; trade-off theory; value added.;

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    References

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    1. Christian Hopp & Finn Rieder, 2004. "What drives Venture Capital Syndication," Finance 0412023, EconWPA, revised 12 Jan 2006.
    2. Frank, Murray Z. & Goyal, Vidhan K., 2009. "Capital Structure Decisions: Which Factors are Reliably Important?," MPRA Paper 22525, University Library of Munich, Germany.
    3. Chan, Yuk-Shee, 1983. " On the Positive Role of Financial Intermediation in Allocation of Venture Capital in a Market with Imperfect Information," Journal of Finance, American Finance Association, vol. 38(5), pages 1543-68, December.
    4. Chan, Yuk-Shee & Thakor, Anjan V, 1987. " Collateral and Competitive Equilibria with Moral Hazard and Private Information," Journal of Finance, American Finance Association, vol. 42(2), pages 345-63, June.
    5. Max Keilbach & Dirk Engel, . "Firm Level Implications of Early Stage Venture Capital Investment - An Empiri cal Investigation," Papers on Entrepreneurship, Growth and Public Policy 2005-22, Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group.
    6. Ueda, Masako, 2002. "Banks versus Venture Capital," CEPR Discussion Papers 3411, C.E.P.R. Discussion Papers.
    7. Casamatta, Catherine & Haritchabalet, Carole, 2003. "Learning and Syndication in Venture Capital Investments," CEPR Discussion Papers 3867, C.E.P.R. Discussion Papers.
    8. Megginson, William L & Weiss, Kathleen A, 1991. " Venture Capitalist Certification in Initial Public Offerings," Journal of Finance, American Finance Association, vol. 46(3), pages 879-903, July.
    9. Baum, Joel A. C. & Silverman, Brian S., 2004. "Picking winners or building them? Alliance, intellectual, and human capital as selection criteria in venture financing and performance of biotechnology startups," Journal of Business Venturing, Elsevier, vol. 19(3), pages 411-436, May.
    10. de Miguel, Alberto & Pindado, Julio, 2001. "Determinants of capital structure: new evidence from Spanish panel data," Journal of Corporate Finance, Elsevier, vol. 7(1), pages 77-99, March.
    11. Frank, Murray Z. & Goyal, Vidhan K., 2003. "Testing the pecking order theory of capital structure," Journal of Financial Economics, Elsevier, vol. 67(2), pages 217-248, February.
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