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Financing and investment interdependencies in unquoted Belgian companies: the role of venture capital

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Author Info
Sophie Manigart ()
Katleen Baeyens
Ilse Verschueren (Vlerick Leuven Gent Management School)

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Abstract

There is ample empirical evidence that investments in (public) companies are correlated with cash flow. This may either be explained as evidence of financing constraints (Fazzari, Hubbard and Petersen, 1988), as excessive conservatism by managers, restraining investments to the internally generated cash flow (Kaplan and Zingales, 2000). We test the investment-cash flow sensitivity in unquoted Belgian companies with a modified sales accelerator model, using unbalanced panel data and GMM techniques. We show that investments in tangible fixed assets are positively related to cash flow. Contrary to our expectations, this sensitivity is not reduced, but it increases, when companies receive venture capital. We interpret the results as evidence of the presence of financing constraints and underinvestment problems in unquoted companies. Venture capital intermediaries are not able to eliminate financing constraints in Belgian unquoted companies.

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Paper provided by Vlerick Leuven Gent Management School in its series Vlerick Leuven Gent Management School Working Paper Series with number 2002-16.

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Length: 38 pages
Date of creation: 27 Jun 2002
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Handle: RePEc:vlg:vlgwps:2002-16

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  27. repec:wuk:andedp:9616 is not listed on IDEAS
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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. Joachim Keller, 2008. "Agency problems in structured finance – a case study of European CLOs," Documents series 200808-22, National Bank of Belgium. [Downloadable!]
  2. Philippe Moës, 2008. "Multivariate structural time series models with dual cycles : implications for measurement of output gap and potential growth," Research series 200808-20, National Bank of Belgium. [Downloadable!]
  3. Philippe Moës, 2006. "The production function approach to the Belgian output gap, Estimation of a Multivariate Structural Time Series Model," Research series 200609-1, National Bank of Belgium. [Downloadable!]
    Other versions:
  4. K. Baeyens & S. Manigart, 2006. "Follow-on financing of venture capital backed companies: The choice between debt, equity, existing and new investors," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 06/362, Ghent University, Faculty of Economics and Business Administration. [Downloadable!]
    Other versions:
  5. François Coppens & David Vivet, 2006. "The single European electricity market: A long road to convergence," Documents series 200605-3, National Bank of Belgium. [Downloadable!]
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