Risk-Return Profiles of New Ventures: An Empirical Study
This study examines how risk evolves in private, venture capital backed companies. It finds that the stochastic Ito processes assumed for public companies probably apply to young, private companies as well. However, the parameters, drift rate and standard deviation, are generally higher. Venture capitalists have viewed companies as evolving through stages, and this study assesses the probabilities of success and failure at each stage. The underlying process of price evolution appears much smoother than the stage model may suggest. The valuation mediods developed for public securities, including option pricing, should apply to private companies as well. This study is a step toward measuring the needed parameters.
Volume (Year): 2 (1993)
Issue (Month): 2 (Spring)
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- Pindyck, Robert S, 1988.
"Irreversible Investment, Capacity Choice, and the Value of the Firm,"
American Economic Review,
American Economic Association, vol. 78(5), pages 969-85, December.
- Robert S. Pindyck, 1986. "Irreversible Investment, Capacity Choice, and the Value of the Firm," NBER Working Papers 1980, National Bureau of Economic Research, Inc.
- Pindyck, Robert S., 1986. "Irreversible investment, capacity choice, and the value of the firm," Working papers 1802-86., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Yuk-Shee Chan., 1982.
"On the Positive Role of Financial Intermediation in Allocation of Venture Capital in a Market with Imperfect Information,"
Research Program in Finance Working Papers
127, University of California at Berkeley.
- 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.
- Fama, Eugene F & MacBeth, James D, 1973. "Risk, Return, and Equilibrium: Empirical Tests," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 607-36, May-June.
- Blume, Marshall E, 1971. "On the Assessment of Risk," Journal of Finance, American Finance Association, vol. 26(1), pages 1-10, March.
- Ruhnka, John C. & Young, John E., 1987. "A venture capital model of the development process for new ventures," Journal of Business Venturing, Elsevier, vol. 2(2), pages 167-184.
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