Investment stage drifts and venture capital managerial incentives

Buzzacchi, Luigi; Scellato, Giuseppe; Ughetto, Elisa

doi:10.1016/j.jcorpfin.2015.05.006

Cited by 22 publications

(7 citation statements)

References 31 publications

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“…They then do not grant funding for the start‐ups with the lowest success potential. Further, our finding might mirror fund managers' “style drifting” behavior, which was detected by Buzzacchi, Scellato, and Ughetto () concerning tax rates. They find that if venture capital fund managers are demanded higher hurdle rates, their investment behavior is shifted to investments with higher risk but also higher returns.…”

Section: Discussionsupporting

confidence: 80%

The Capital Gains Tax: A Curse but Also a Blessing for Venture Capital Investment

Bock

Watzinger

2017

Journal of Small Business Management

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractThis article documents a statistical association between the number and success of venture capital investments and the capital gains tax rate.To do this, we analyze investment data and taxes of 32 countries from 2000 to 2010. In our data, higher capital gains tax rates are associated with fewer firms financed and a lower probability for ventures receiving follow-up funding. However, if the first investment is received when taxes are high, the probability of a firm eventually going public or being acquired increases. We conclude that high tax rates are associated with fewer, but on average more successful companies.JEL Classification Numbers : G24, H25, H32

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Section: Discussionsupporting

confidence: 80%

The Capital Gains Tax: A Curse but Also a Blessing for Venture Capital Investment

Bock

Watzinger

2017

Journal of Small Business Management

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“…This paper is related to a growing literature on booms and busts in VC, and regional analyses of VC. First, with respect to booms and busts in general, booms and busts in VC investment have been documented by Buzzacchi, Scellato, and Ughetto (2015), Cumming, Fleming, and Schwienbacher (2005), and Gompers and Lerner (1999), among others. Second, region-specific patterns of VC activity have been documented by Bertoni, Colombo, and Quas (2015) and Bozkaya and Kerr (2014) for Europe.…”

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confidence: 99%

Fintech venture capital

Cumming

Schwienbacher

2018

Corporate Governance

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Manuscript Type Empirical Research Question/Issue Where are fintech venture capital investments taking place around the world? What is the role of institutional factors on the international allocation of fintech venture capital? Research Findings/Insights We document a notable change in the pattern of fintech venture capital (VC) investments around the world relative to other types of investments after the global financial crisis. We show that fintech venture capital investments are relatively more common in countries with weaker regulatory enforcement and without a major financial center after the financial crisis. Also, we show the fintech boom is more pronounced for smaller private limited partnership venture capitalists that likely have less experience with prior venture capital booms and busts. These fintech VC deals are substantially more likely to be liquidated, especially when located in countries without a major financial center. Theoretical/Academic Implications We build on the institutions and corporate governance literatures by showing the importance of enforcement in driving relative differences in investment patterns and investor participation. For entrepreneurial startups, regulatory arbitrage drives investment into countries with a dearth of enforcement and regulatory costs. We argue that the spike in fintech venture capital in certain countries is attributable to differential enforcement of financial institution rules amongst startups versus large established financial institutions after the financial crisis. Practitioner/Policy Implications Regulatory arbitrage in the context of fintech venture capital can spur booms and busts. Less experienced venture capitalists seem more prone to undertake investments that exacerbate boom and bust cycles. National governance is strengthened by the enforcement of regulatory standards, and corporate governance through investor experience and oversight can mitigate these swings, and facilitate better investment outcomes.

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“…Some previous studies hold that VC could play the role of providing financial capital, supervising and motivating management, thus increasing the IE of newly public firms (Narayanan and Lévesque, 2018;Buzzacchi et al, 2015). Others indicate that conflict may arise between VC institutions and entrepreneurs and decreasing the IE of newly public firms CMS 17,4 (Appelhoff et al, 2016;Masulis and Nahata, 2011).…”

Section: Venture Capital and Investment Efficiencymentioning

confidence: 99%

Striving to improve investment efficiency among Chinese firms: does the role of venture capital matter?

Wang

Ran

2022

CMS

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Purpose This study aims to investigate the impact of venture capital (VC) involvement on investment efficiency (IE) and its potential action mechanisms from the perspective of financial resource allocation. Design/methodology/approach Using data of Chinese firms between 2008 and 2020, and the propensity score matching–difference in differences method, the authors investigate the relationship between VC and IE. Findings The results show that VC involvement significantly promotes IE, and the effect exhibits an inverted U-shape dynamic over time. The authors find two mechanisms through which VC promotes IE: alleviating financing constraints and improving corporate governance. Supplementary tests indicate that VC institutions with high reputations play a significant role in enhancing IE; the promotion effect is more pronounced for firms in non-high-tech industries, firms facing higher industrial competition and firms located in areas with better property rights protection systems. Originality/value This study provides several original contributions. First, based on principal–agent and financing constraint theories, this study enhances the literature by revealing how VC drives the IE of newly public firms in China. Second, to the best of the authors’ knowledge, this is the first attempt to identify the mechanisms between VC and IE; Third, from an empirical perspective, besides discussing the average and dynamic effect of VC on IE, this study also explores the impact of the interaction between VC and market competition and property rights protection on IE.

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Investment stage drifts and venture capital managerial incentives

Cited by 22 publications

References 31 publications

The Capital Gains Tax: A Curse but Also a Blessing for Venture Capital Investment

The Capital Gains Tax: A Curse but Also a Blessing for Venture Capital Investment

Fintech venture capital

Striving to improve investment efficiency among Chinese firms: does the role of venture capital matter?

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