The Impact of Venture Capital Investments on Public Firm Stock Performance
University of Notre Dame
University of Notre Dame - Department of Finance
October 1, 2010
The aggregate amount of venture capital investments in non-publicly traded firms since 1980 is more than $390 billion. We test two economic hypotheses on the connection between venture capital investment and subsequent firm performance. We find that lagged VC investments scaled by industry assets are negatively related to subsequent firm stock returns after adjusting for other factors. However, not all firms are equally impacted. We find that financially constrained firms suffer the most when new VC money pours into an industry. Firms receiving VC money are active in patent creation which appears to increase innovation pressures on established companies. It appears that the market is slow to incorporate the information contained in the venture capital investments.
Number of Pages in PDF File: 38
Keywords: Venture capital, patents, misvaluations
JEL Classification: G14, G24
Date posted: April 16, 2009 ; Last revised: October 19, 2010
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