Are Firms Accessing Venture Funding More Financially Constrained? New Evidence from Capital Structure Adjustments

Balboa, M.; Martí, J., Tresierra, A. (2017). Are Firms Accessing Venture Funding More Financially Constrained? New Evidence from Capital Structure Adjustments. European Journal of Finance, 23(3), 243-265. DOI: 10.1080/1351847X.2016.1151803.

39 Pages Posted: 14 Nov 2015 Last revised: 15 Dec 2017

See all articles by Marina Balboa

Marina Balboa

University of Alicante - Department of Financial Economics

José Martí

Universidad Complutense de Madrid - Department of Accounting and Finance

Alvaro Tresierra

Universidad Complutense de Madrid (UCM)

Date Written: September 1, 2015

Abstract

We analyze whether firms that receive Venture Capital (VC) at a later date face more financial constraints than a one-by-one matched sample of firms that did not receive VC funding (control group). The aim is to check whether their financial flexibility explains why they decide to seek external equity funding. In contrast with other papers, which focus on the sensitivity of investments to cash flow, we study this issue by applying a dynamic model to analyze the speed of adjustment to their target debt levels prior to receiving the first VC investment. We analyze a representative sample of 237 Spanish unlisted firms that received VC between 1995 and 2007 and its corresponding control group. We find that firms that receive VC funding show a significantly lower speed of adjustment than their matched peers before the initial VC round. It seems that the former are more concerned about funding the required investments than about adjusting the firm’s debt ratio to a target level. Our results confirm the role of VC in filling the equity gap in constrained unlisted firms. From a capital structure perspective, VC may become a tool for these companies to balance their capital structure in a growth process.

Suggested Citation

Balboa, Marina and Martí Pellón, José and Tresierra, Alvaro, Are Firms Accessing Venture Funding More Financially Constrained? New Evidence from Capital Structure Adjustments (September 1, 2015). Balboa, M.; Martí, J., Tresierra, A. (2017). Are Firms Accessing Venture Funding More Financially Constrained? New Evidence from Capital Structure Adjustments. European Journal of Finance, 23(3), 243-265. DOI: 10.1080/1351847X.2016.1151803., Available at SSRN: https://ssrn.com/abstract=2690013 or http://dx.doi.org/10.2139/ssrn.2690013

Marina Balboa (Contact Author)

University of Alicante - Department of Financial Economics ( email )

Ctra. S. Vicente s/n
03690-S. Vicente del Raspeig
Alicante, San Vicente del Raspeig - Alicante 03690
Spain
+34 96 590 3400 Ext. 3135 (Phone)
+34 96 590 3621 (Fax)

José Martí Pellón

Universidad Complutense de Madrid - Department of Accounting and Finance ( email )

Carretera de Humera s/n
Madrid 28223, Madrid 28223
Spain
+ 3491 3942310 (Phone)
+ 34 91 3942534 (Fax)

Alvaro Tresierra

Universidad Complutense de Madrid (UCM) ( email )

Carretera de Humera s/n
Madrid, Madrid 28223
Spain

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