Do Banks or VCs Spur Small Firm Growth?

36 Pages Posted: 1 Nov 2014

See all articles by Rebel A. Cole

Rebel A. Cole

Florida Atlantic University

Douglas J. Cumming

Florida Atlantic University

Dan Li

The University of Hong Kong - School of Economics and Finance

Multiple version iconThere are 2 versions of this paper

Date Written: October 31, 2014

Abstract

It is well accepted that access to entrepreneurial finance encourages entrepreneurship and growth. Empirical studies on topic, however, segregate the effect of entrepreneurial finance on entrepreneurship by the source of capital. In this paper, we compare the effect of two main sources of entrepreneurial finance small firm formation and growth: banks versus venture capital (VC). Based on U.S. data spanning 1995-2011, and regardless of controls for endogeneity, we find the effect of VC to be both economically and statistically significant in stimulating new firms, new establishments, new employment, and new payroll. We do not find similar evidence for banks.

Keywords: Banks, Venture Capital, Growth, Entrepreneurship

JEL Classification: L26, L50, K31, K35, G24

Suggested Citation

Cole, Rebel A. and Cumming, Douglas J. and Li, Dan, Do Banks or VCs Spur Small Firm Growth? (October 31, 2014). Available at SSRN: https://ssrn.com/abstract=2517291 or http://dx.doi.org/10.2139/ssrn.2517291

Rebel A. Cole

Florida Atlantic University ( email )

College of Business
777 Glades Road
Boca Raton, FL 33431
United States
1-561-297-4969 (Phone)

HOME PAGE: http://rebelcole.com

Douglas J. Cumming

Florida Atlantic University ( email )

777 Glades Rd
Boca Raton, FL 33431
United States

HOME PAGE: http://booksite.elsevier.com/9780124095373/

Dan Li (Contact Author)

The University of Hong Kong - School of Economics and Finance ( email )

Shenzhen
China

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