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Do Banks or VCs Spur Small Firm Growth?

37 Pages Posted: 31 Oct 2015 Last revised: 2 Sep 2016

Rebel A. Cole

College of Business--Florida Atlantic University

Douglas J. Cumming

York University - Schulich School of Business

Dan Li

The University of Hong Kong - School of Economics and Finance

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Date Written: October 30, 2015

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: G21, G24

Suggested Citation

Cole, Rebel A. and Cumming, Douglas J. and Li, Dan, Do Banks or VCs Spur Small Firm Growth? (October 30, 2015). Journal of International Financial Markets, Institutions and Money 41, 60-72, March 2016. Available at SSRN: https://ssrn.com/abstract=2684049

Rebel A. Cole

College of Business--Florida Atlantic University ( email )

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

Douglas J. Cumming

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

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

Dan Li (Contact Author)

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

8th Floor Kennedy Town Centre
23 Belcher's Street
Kennedy Town
Hong Kong

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