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We investigate the impact of venture capitalists on the turnover of executives within a sample of nearly 46,500 German high-tech start-up companies founded between 1995 and 2004. We confirm that the presence of VCs increases the chances that the company will change the structure of its initial executive team. For the purposes of our analysis, we distinguish between different types of changes (somebody is replaced, the team is enlarged, the team shrinks). Additionally, we take a closer look at the subsample of venture-backed companies. We find that a small distance between the VCs and the companies they finance, as well as a larger total stake in the company owned by the VCs, goes hand-in-hand with an increased probability of changes in the initial executive teams.

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Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW.Download this ZEW Discussion Paper from our ftp server:http://ftp.zew.de/pub/zew-docs/dp/dp11081.pdf Non-technical SummaryIn this paper we investigate whether local characteristics influence entrepreneurial activities. One local characteristic that may drive the decision to establish a firm in a specific region is the supply of infrastructure. Infrastructure important for entrepreneurial activity may take different forms and functions. First, trade and industrial growth require physical infrastructure like streets, rails and waterways. Second, particularly for knowledge-and technology-based ventures the knowledge infrastructure is crucial. Third, an additional type of knowledge spillovers may foster local entrepreneurial activities: the local business community. Those networks may help create specific and tacit business knowledge and contacts which may be vital for entrepreneurial firms. We further focus on a region's broadband availability which may spur entrepreneurial activities. New broadband infrastructure may reduce the necessity of physical proximity. Furthermore, taking broadband as a virtual marketplace and an infrastructure for customer contact, its roll-out and the increase of quality is a requirement for firm formations.Using a county-year panel structure we consider the impact of broadband availability on company foundations and control for standard impact factors on venture activities. The central variable of our analysis is a broadband indicator. Broadband penetration is measured on a county basis. A county is equipped with broadband if at least one main distribution frame (MDF) in the county is upgraded to allow for broadband access. We account for different issues with MDFs: Multiple MDFs may be installed within one county, MDFs at county boundaries do not only provide access to households and companies in that county but also to connected consumers in the neighboring counties, and changes of county boundaries across time must be taken into account.On sector level, we find a significantly positive influence of broadband availability on entrepreneurial intensities in high-tech industries like software and technology-intensive services (knowledge-intensive services). In contrast, no influence exists if we look at all sectors.Moreover, other infrastructural drivers of founding activities follow the results known from the literature. In consequence, our study provides evidence for an additional driver of entrepreneurial activities which supports the ...

Die Discussion Papers dienen einer möglichst schnellen Verbreitung von neueren Forschungsarbeiten des ZEW. Die Beiträge liegen in alleiniger Verantwortung der Autoren und stellen nicht notwendigerweise die Meinung des ZEW dar.Discussion Papers are intended to make results of ZEW research promptly available to other economists in order to encourage discussion and suggestions for revisions. The authors are solely responsible for the contents which do not necessarily represent the opinion of the ZEW.Download this ZEW Discussion Paper from our ftp server:ftp://ftp.zew.de/pub/zew-docs/dp/dp0485.pdf Non-Technical SummaryBusiness cycle fluctuations have an important impact on entrepreneurial decisions. Whether they also influence the innovation decision, is investigated in this paper. Innovation activities are often referred to be almost independent of fluctuations of the business cycle. Several reasons can substantiate this: First, the duration of an innovation project often exceeds the duration of a business cycle phase. Second, firms may want to smooth their innovation expenditures and therefore try to continuously produce innovation output. Finally, innovation expenditures are often regarded as investments with sunk-cost characteristics and high adjustment costs. Therefore the question arises whether innovation activities really follow a smooth path or exhibit a cyclical pattern over time. Different explanations for a link between innovation and economic activity can be found in the literature. Schumpeter (1939) states that science and technology (innovations) influence entrepreneurial activity and consequently the business cycle. This approach is known as supply-push. In contrast, Schmookler's (1966) hypothesis states that innovation crucially depends on market demand. According to this demand-pull approach, the patterns in the innovation activities may respond pro-and counter-cyclically to fluctuations in the business cycle. This paper tests empirically whether the entrepreneurial decision to innovate is influenced by the business cycle. This dynamic economic process is modelled via first-order Markov chains. By this means the probability to switch from being not innovative to being innovative or vice versa is modelled. It is assumed that these probabilities are influenced by business cycle indicators, market structure and firms characteristics. The results suggest that there are both pro-and counter-cyclical patterns in firms' innovation activities. On the one hand the probability for a non-innovative firm to start to innovate is dependent on fluctuations in economic activity only for SMEs, so that in this case small and medium-sized enterprises (SME) seem to be more sensitive than bigger firms. According to this result they tend to react countercyclically. Moreover, the probability for an innovative firm to stop innovating depends on fluctuations of the business cycle. But the effect is ambiguous because pro-cyclical as well as counter-cyclical patterns emerge. The Link Between Firms' InnovationDecision and the...