Stage-specific effects of the Sarbanes-Oxley Act

Abstract

Purpose -The purpose of this paper is to empirically demonstrate that drivers of venture capital (VC) investments are different across three broadly defined sectors: high-technology manufacturing, medium-technology manufacturing and services, and low-technology services. Moreover, such differences also exist across industries within each of these sectors. Design/methodology/approach -The basic hypothesis is that "not only different stages of VC investments have different drivers, but VC investments in different sectors of the economy are also driven by different drivers." The paper tests this hypothesis using a Poterba (1989) type supply and demand framework in the multivariate time-series regression analysis. Findings -This paper empirically demonstrates that drivers of VC investments are different across three broadly defined sectors: high-technology manufacturing, medium-technology manufacturing and services, and low-technology services. Moreover, such differences also exist by stages of investment and across industries within each of these sectors. In particular, the paper finds that the importance of the number of VC-led initial public offering (IPO) transactions as the main driver of VC investment decreases with the level of technology involved in the sector. IPO transactions are particularly important in software, networking and equipment, and business products and services industries. In contrast to earlier literature, however, the paper do not find a more pronounced effect of IPOs for seed and late stages of VC investments. Similarly, the positive impact Sarbanes-Oxley Act of 2002 -which mainly impacts public companies -also intensifies with a decrease in the level of technology involved in the sector, and the paper do not find a negative impact. The Act is important particularly for VC investments in medium-and low-tech sectors and in early or expansion stages. Originality/value -In analyzing the determinants of VC in a supply and demand framework as in Poterba (1989), the paper differentiates between different sectors (17 industries) and stages of VC (four stages: seed, early, expansion, late). Such level of differentiation is novel and allows more refined and better targeted public policy measures.

Determinants of Venture Capital Supply in Sub-Saharan Africa

“…A recent study by Félix et al (2013) found that, there is a statistically significant positive relationship between IPO and venture capital supply and concluded that among all the authors indicated above the only previous study that obtained a statistically positive relationship between IPO and venture capital supply at the later stage was Jeng and Wells (2000). Ecer and Khalid (2013) discovered that there is a significant negative relationship between IPO and venture capital supply for High technology firms and a significant positive relationship between IPO and venture capital supply for Low technology firms. Henderson and Newell (2011) in a study conducted in USA found that a reduction in IPO has a negative effect on venture capital supply.…”

Early-Stage Entrepreneurial Investment decision making: Challenges and Dynamics

“…Further, they help in marketing, supplier selection, and connections, which leads to sustainability. Consistent with Ecer & Khalid (2013), they found that VCs assisted startups' expansion with hands-on involvement in marketing, management, and planning activities.…”

“…In this context, private funders might use these signals for investment decisions. Ecer & Khalid (2013) presumed that VCs with extensive industry experience tend to boost their investments when the public markets' signs are favorable.…”

“…(Isin Guler, 2007). Ecer & Khalid (2013) explained the different funding stages. The difficulties that investors may have while making a decision are key aspects that can be expanded upon; a certain degree of acknowledged materiality may have an impact on investors' decisionmaking.…”

Firms in Transition: A Review of the Venture Capital, IPO, and M&A Literature

“…Regarding the determinants of VC investments, there is evidence that VC investors perform their own detailed due diligence (Smith and Cordina, 2014) and that their investment is facilitated by the IPO exit route, except for later development stages firms (Ecer and Khalid, 2013).…”