Venture capital financing and the financial distress risk of portfolio firms: How independent and bank-affiliated investors differ

Venture capital financing and the financial distress risk of portfolio firms: How independent and... We analyze a sample of European high-tech entrepreneurial firms that received bank venture capital (BVC) financing between 1994 and 2004. We employ a “two-step” matching procedure in order to build a control group composed of (1) comparable firms that received venture capital financing from independent investors (IVCs) and (2) comparable non-invested firms. The econometric analyses suggest that BVC investors are interested in the financial risk profile of the firms they invest in. In fact, before the first round of financing, BVC-backed firms show a lower risk of financial distress than both IVC-backed firms and non-invested firms. However, after the investment, BVC-backed firms exhibit a significant increase in debt exposure, compared to non-invested firms. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Small Business Economics Springer Journals

Venture capital financing and the financial distress risk of portfolio firms: How independent and bank-affiliated investors differ

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Publisher
Springer US
Copyright
Copyright © 2014 by Springer Science+Business Media New York
Subject
Economics / Management Science; Management/Business for Professionals; Microeconomics; Entrepreneurship; Industrial Organization
ISSN
0921-898X
eISSN
1573-0913
D.O.I.
10.1007/s11187-014-9582-4
Publisher site
See Article on Publisher Site

Abstract

We analyze a sample of European high-tech entrepreneurial firms that received bank venture capital (BVC) financing between 1994 and 2004. We employ a “two-step” matching procedure in order to build a control group composed of (1) comparable firms that received venture capital financing from independent investors (IVCs) and (2) comparable non-invested firms. The econometric analyses suggest that BVC investors are interested in the financial risk profile of the firms they invest in. In fact, before the first round of financing, BVC-backed firms show a lower risk of financial distress than both IVC-backed firms and non-invested firms. However, after the investment, BVC-backed firms exhibit a significant increase in debt exposure, compared to non-invested firms.

Journal

Small Business EconomicsSpringer Journals

Published: Apr 16, 2014

References

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