Working Paper: CEPR ID: DP4794
Authors: Laura Bottazzi; Marco Da Rin; Thomas F. Hellmann
Abstract: Financial intermediaries can choose the extent to which they want to be active investors, providing valuable services like advice, support and corporate governance. We examine the determinants of the decision to become an active financial intermediary using a hand-collected dataset on European venture capital deals. We find organizational specialization to be a key driver. Venture firms which are independent and focused on venture capital alone get more involved with their companies. The human capital of venture partners is another key driver of active financial intermediation. Venture firms whose partners have prior business experience or a scientific education provide more support and governance. These results have implications for prevailing views of financial intermediation, which largely abstract from issues of specialization and human capital.
Keywords: financial intermediation; human capital; specialization
JEL Codes: G20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Organizational specialization (L29) | Active investment styles (G11) |
| Human capital (J24) | Active investment styles (G11) |
| Organizational specialization + Human capital (D29) | Active investment styles (G11) |
| Prior business experience of venture partners (M13) | Active involvement with portfolio companies (G34) |
| Organizational specialization + Human capital (D29) | Active involvement with portfolio companies (G34) |