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The Government as Venture Capitalist: The Long-Run Effects of the SBIR Program

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Josh Lerner

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Abstract

Public programs to provide early-stage financing to firms, particularly high-technology companies, have become commonplace in the United States and abroad. The long-run effectiveness of these programs, however, has attracted little empirical scrutiny. This paper examines the impact of the largest U.S. public venture capital initiative, the Small Business Innovation Research (SBIR) program, which has provided over $6 billion to small high-technology firms between 1983 and 1995. Using a unique database" of awardees compiled by the U.S. General Accounting Office, I show that SBIR awardees grew significantly faster than a matched set of firms over a ten-year period. The positive effects of SBIR awards were confined to firms based in zip codes with substantial venture capital activity. The findings are consistent with both the corporate finance literature on capital constraints and the growth literature on the importance of localization effects.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5753.

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Date of creation: Sep 1996
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Handle: RePEc:nbr:nberwo:5753

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Freear, John & Wetzel, William Jr., 1990. "Who bankrolls high-tech entrepreneurs?," Journal of Business Venturing, Elsevier, vol. 5(2), pages 77-89, March. [Downloadable!] (restricted)
  2. Mansfield, Edwin, et al, 1977. "Social and Private Rates of Return from Industrial Innovations," The Quarterly Journal of Economics, MIT Press, vol. 91(2), pages 221-40, May. [Downloadable!] (restricted)
  3. R. Glenn Hubbard, 1997. "Capital-Market Imperfections and Investment," NBER Working Papers 5996, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. Lerner, Josh, 1995. " Venture Capitalists and the Oversight of Private Firms," Journal of Finance, American Finance Association, vol. 50(1), pages 301-18, March. [Downloadable!] (restricted)
  5. Christopher B. Barry, 1994. "New Directions in Research on Venture Capital Finance," Financial Management, Financial Management Association, vol. 23(3), Fall.
  6. Gompers, Paul A, 1995. " Optimal Investment, Monitoring, and the Staging of Venture Capital," Journal of Finance, American Finance Association, vol. 50(5), pages 1461-89, December. [Downloadable!] (restricted)
  7. Devenow, Andrea & Welch, Ivo, 1996. "Rational herding in financial economics," European Economic Review, Elsevier, vol. 40(3-5), pages 603-615, April. [Downloadable!] (restricted)
  8. Sahlman, William A., 1990. "The structure and governance of venture-capital organizations," Journal of Financial Economics, Elsevier, vol. 27(2), pages 473-521, October. [Downloadable!] (restricted)
  9. George W. Fenn & Nellie Liang & Stephen Prowse, 1995. "The economics of the private equity market," Staff Studies 168, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  10. Douglas A. Irwin & Peter J. Klenow, 1994. "High Tech R&D Subsidies: Estimating the Effects of Sematech," NBER Working Papers 4974, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  11. David M. Levy & Nestor E. Terleckyj, 1983. "Effects of Government R&D on Private R&D Investment and Productivity: A Macroeconomic Analysis," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 551-561, Autumn. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Sau Lino, 2007. "New pecking order financing for innovative firms:an overview," Department of Economics Working Papers 200702, University of Turin. [Downloadable!]
    Other versions:
  2. Doga Kayalar Erdem & David B. Audretsch, 2004. "Determinants Of Scientist Entrepreneurship: An Integrative Research Agenda," Papers on Entrepreneurship, Growth and Public Policy 2004-42, Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group. [Downloadable!]
  3. Ari Hyytinen & Tuomas Takalo, 2004. "Investor Protection and Business Creation," Discussion Papers 889, The Research Institute of the Finnish Economy. [Downloadable!]
    Other versions:
  4. Cumming, D. & Johan, S., 2005. "Is it the law or the lawyers? : Investment fund covernants across countries," Discussion Paper 05, Tilburg University, Tilburg Law and Economic Center. [Downloadable!]
  5. Paul Gompers & Josh Lerner & David Scharfstein, 2003. "Entrepreneurial Spawning: Public Corporations and the Genesis of New Ventures, 1986-1999," NBER Working Papers 9816, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Douglas Cumming & Grant Fleming & Armin Schwienbacher, 2008. "Financial intermediaries, ownership structure and the provision of venture capital to SMEs: evidence from Japan," Small Business Economics, Springer, vol. 31(1), pages 59-92, June. [Downloadable!] (restricted)
  7. Judit Karsai, 2004. "Can the state replace private capital investors? Public financing of venture capital in Hungary," IEHAS Discussion Papers 0409, Institute of Economics, Hungarian Academy of Sciences. [Downloadable!]
  8. Douhan, Robin & Henrekson, Magnus, 2007. "The Political Economy of Entrepreneurship: An Introduction," Working Paper Series 688, Research Institute of Industrial Economics. [Downloadable!]
  9. Rainer Fehn & Thomas Fuchs, 2003. "Capital Market Institutions and Venture Capital: Do They Affect Unemployment and Labour Demand?," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  10. Bronwyn H. Hall, 2002. "The Financing of Research and Development," NBER Working Papers 8773, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  11. Douglas Cumming & Daniel Schmidt & Uwe Walz, 2004. "Legality and Venture Governance Around the World," CFS Working Paper Series 2004/17, Center for Financial Studies. [Downloadable!]
  12. Josh Lerner, 2002. "When Bureaucrats Meet Entrepreneurs: The Design of Effective "Public Venture Capital" Programmes," Economic Journal, Royal Economic Society, vol. 112(477), pages F73-F84, February. [Downloadable!] (restricted)
  13. Cumming, Douglas & Johan, Sofia, 2006. "Regulatory harmonization and the development of private equity markets," Discussion Paper 1, Tilburg University, Tilburg Law and Economic Center. [Downloadable!]
    Other versions:
  14. Paul A. Gompers & Josh Lerner, 1999. "What Drives Venture Capital Fundraising?," NBER Working Papers 6906, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  15. John Armour & Douglas Cumming, 2004. "The Legal Road To Replicating Silicon Valley," ESRC Centre for Business Research - Working Papers wp281, ESRC Centre for Business Research. [Downloadable!]
  16. Douglas J. Cumming & Jeffrey G. MacIntosh, 2003. "Comparative Venture Capital Governance. Private versus Labour Sponsored Venture Capital Funds," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  17. Paul Gompers & Josh Lerner, 2001. "The Venture Capital Revolution," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 145-168, Spring. [Downloadable!] (restricted)
  18. Ari Hyytinen & Lotta Väänänen, 2002. "Government Funding of Small and Medium-sized Enterprises in Finland," Discussion Papers 832, The Research Institute of the Finnish Economy. [Downloadable!]
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