Working Paper: NBER ID: w16521
Authors: James A. Brander; Qianqian Du; Thomas F. Hellmann
Abstract: This paper examines the impact of government-sponsored venture capitalists (GVCs) on the success of enterprises. Using international enterprise-level data, we identify a surprising non-monotonicity in the effect of GVC on the likelihood of exit via initial public offerings (IPOs) or third party acquisitions. Enterprises that receive funding from both private venture capitalists (PVCs) and GVCs outperform benchmark enterprises financed purely by private venture capitalists if only a moderate fraction of funding comes from GVCs. However, enterprises underperform if a large fraction of funding comes from GVCs. Instrumental variable regressions suggest that endogeneity in the form of unobservable selection effects cannot account for these effects of GVC financing. The underperformance result appears to be largely driven by investments made in times when private venture capital is abundant. The outperformance result applies only to venture capital firms that are supported but not owned outright by governments.
Keywords: government-sponsored venture capital; exit performance; international evidence; instrumental variable regression
JEL Codes: G24; H44; H81; O38
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| GVC funding (O16) | exit performance (Y60) |
| small amount of GVC investment (F21) | likelihood of successful exits (L26) |
| large amounts of GVC funding (O16) | likelihood of successful exits (L26) |
| GVC and PVC funding (G39) | exit performance (Y60) |
| high GVC share (F62) | underperformance (D29) |
| government-owned GVCs (L32) | worse outcomes (I14) |
| market discipline (G18) | effectiveness of government-sponsored venture capital (O38) |