《《The impact of venture capital on innovation behaviour andfirm growth.》.pdfVIP

Venture Capital Vol. 12, No. 2, April 2010, 83–107 The impact of venture capital on innovation behaviour and firm growth Michael Peneder* Austrian Institute of Economic Research (WIFO), Vienna, Austria (Accepted November 2009) This paper uses a novel research design to investigate the effects of venture capital financing on corporate performance by applying a two-stage propensity score matching on Austrian micro-data. Controlling for differences in industry, loca- tion, legal status, size, age, credit rating, export and innovation behaviour, the findings (i) assert the financing function of venture capital, showing that recipients lacked access to satisfactory alternative sources of capital; (ii) identify selection effects, where venture capital is invested in firms with high performance potential; and finally (iii) confirm the value adding function in terms of a genuine causal impact of venture capital on firm growth, yet not on innovation output. Keywords: venture capital; entrepreneurship; firm growth; propensity score matching 1. Introduction Ample anecdotal evidence illustrates the importance of venture capital in enabling firms to carry out ambitious business plans and to sustain and grow during particularly critical phases of their development. Based on this track record, venture capital has earned permanent mention in international scoreboards and strategy papers on innovation and enterprise policies. Owing to its complex mode of operation, however, there is also a danger of creating uncontested myths, where exaggerated expectations and consequent disappointments stand opposed to a more realistic understanding of the actual effects of