Do Banks or VCs Spur Small Firm Growth?

Cole, Rebel A.; Cumming, Douglas J.; Li, Dan

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Do Banks or VCs Spur Small Firm Growth?

Journal of International Financial Markets, Institutions and Money 41, 60-72, March 2016

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

See all articles by Rebel A. Cole

Douglas J. Cumming

Florida Atlantic University; Birmingham Business School; European Corporate Governance Institute (ECGI)

Dan Li

Chinese University of Hong Kong, Shenzhen

There are 2 versions of this paper

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: 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