Working Paper: NBER ID: w24082
Authors: Gordon M. Phillips; Alexei Zhdanov
Abstract: We examine the relation between venture capital (VC) investments and mergers and acquisitions (M&A) activity around the world. We find evidence of a strong positive association between VC investments and lagged M&A activity, consistent with the hypothesis that an active M&A market provides viable exit opportunities for VC companies and therefore incentivizes them to engage in more deals. We also explore the effects of country-level pro-takeover legislation passed internationally (positive shocks), and US state-level antitakeover business combination laws (negative shocks), on VC activity. We find significant post-law changes in VC activity. VC activity intensifies after enactment of country-level takeover friendly legislation and decreases following passage of state antitakeover laws in the U.S.
Keywords: venture capital; mergers and acquisitions; pro-takeover legislation; anti-takeover laws
JEL Codes: G3; G34; L12; O3; O31; O34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| lagged M&A activity (G34) | subsequent VC investments (G24) |
| local currency depreciation (F31) | cross-border M&A activity (F23) |
| pro-takeover legislation (G34) | VC activity (G24) |
| anti-takeover laws (G34) | VC activity (G24) |