The Impact of Venture Capital Investments on Public Firm Stock Performance

38 Pages Posted: 16 Apr 2009 Last revised: 19 Oct 2010

Tim Loughran

University of Notre Dame

Sophie Shive

University of Notre Dame - Department of Finance

Date Written: October 1, 2010

Abstract

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.

Keywords: Venture capital, patents, misvaluations

JEL Classification: G14, G24

Suggested Citation

Loughran, Tim and Shive, Sophie, The Impact of Venture Capital Investments on Public Firm Stock Performance (October 1, 2010). Available at SSRN: https://ssrn.com/abstract=1383481 or http://dx.doi.org/10.2139/ssrn.1383481

Tim Loughran (Contact Author)

University of Notre Dame ( email )

Department of Finance
245 Mendoza College of Business
Notre Dame, IN 46556-5646
United States
574-631-8432 (Phone)
574-631-5255 (Fax)

Sophie Shive

University of Notre Dame - Department of Finance ( email )

P.O. Box 399
Notre Dame, IN 46556-0399
United States

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