The Impact of Venture Capital Monitoring in Europe

Abstract

In this paper we aim to empirically test the monitoring effect of Venture Capital financing on portfolio companies. Following Bernstein et al. (2015), we exploit the introduction of a new airline route between investor and investee locations as an exogenous shock lowering the cost of monitoring activities performed by a venture capitalist. Using a sample of 9,564 investments by lead VC investors in Europe, we test how this treatment affects portfolio companies’ performances in terms of the likelihood of being listed or acquired, the number of patents, the number of employees and the amount of sales. Our results show that VC monitoring has a positive and economically relevant effect on European portfolio companies along most of these performance measures, but with different time horizons.

Keywords: Venture Capital, Monitoring, Europe, Corporate Venture Capital, Cross-Border Investments

JEL Classification: G24, L26