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Venture Capital versus Bank Financing in Innovative German Firms

Author

Listed:
  • Dorothea Schäfer
  • Oleksandr Talavera
  • Volker Zimmermann

Abstract

The paper investigates young firms' choice of capital source. Our theoretical model hypothesizes a positive (negative) relation between riskiness of the project (price of venture capital) and receiving informed equity. We test our predictions by employing a unique data set collected by KfW group. The theoretical framework is largely confirmed for the sample of bank financing and independent VC financing. However, the picture is less clear if the sample includes also public and bank-dependent VCs. In this case, empirical evidence is less compatible with theory, in particular the evidence on intrinsic project risk is inconclusive.

Suggested Citation

  • Dorothea Schäfer & Oleksandr Talavera & Volker Zimmermann, 2007. "Venture Capital versus Bank Financing in Innovative German Firms," Discussion Papers of DIW Berlin 701, DIW Berlin, German Institute for Economic Research.
  • Handle: RePEc:diw:diwwpp:dp701
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    File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.60123.de/dp701.pdf
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    More about this item

    Keywords

    Equity financing; debt financing; innovation firms;

    JEL classification:

    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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