Risk and Return Characteristics of Venture Capital-Backed Entrepreneurial Companies
Arthur G. Korteweg
Stanford Graduate School of Business
Columbia Business School; National Bureau of Economic Research (NBER); Swedish Institute for Financial Research (SIFR)
November 16, 2009
Review of Financial Studies, Forthcoming
AFA 2009 San Francisco Meetings Paper
Valuations of entrepreneurial companies are only observed occasionally, albeit more frequently for well-performing companies. Consequently, estimators of risk and return must correct for sample selection to obtain consistent estimates. We develop a general model of dynamic sample selection model and estimate it using data from venture capital investments in entrepreneurial companies. Our selection correction leads to markedly lower intercepts and higher estimates of risks compared to previous studies. The methodology is generally applicable to estimating risk and return in illiquid markets with endogenous trading.
Number of Pages in PDF File: 58
Keywords: Entrepreneurship, Venture Capital, Sample Selection, Liquidity, Endogenous Trading, MCMC, Gibbs Sampling
JEL Classification: C11, C32, G24, M13working papers series
Date posted: March 25, 2008 ; Last revised: August 29, 2011
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