The Effects of Government-Sponsored Venture Capital: International Evidence

James A. Brander, Qianqian Du, Thomas F. Hellmann

NBER Working Paper No. 16521
Issued in November 2010
NBER Program(s):   CF

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.

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Document Object Identifier (DOI): 10.3386/w16521

Published: The Effects of Government-Sponsored Venture Capital: International Evidence* James A. Brander1, Qianqian Du2 and Thomas Hellmann3 Review of Finance (2014) doi: 10.1093/rof/rfu009 citation courtesy of

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