Can Government Intervention Make Firms More Investment-Ready? A Randomized Experiment in the Western Balkans

74 Pages Posted: 6 Aug 2018

See all articles by Ana P. Cusolito

Ana P. Cusolito

World Bank

Ernest Dautović

European Central Bank

David J. McKenzie

World Bank - Development Research Group (DECRG); IZA Institute of Labor Economics

Date Written: August 2018

Abstract

Many innovative start-ups and SMEs have good ideas, but do not have these ideas fine-tuned to the stage where they can attract outside funding. Investment readiness programs attempt to help firms to become ready to attract and accept outside equity funding through a combination of training, mentoring, master classes, and networking. We conduct a five-country randomized experiment in the Western Balkans that works with 346 firms and delivers an investment readiness program to half of these firms, with the control group receiving an inexpensive online program instead. A pitch event was then held for these firms to pitch their ideas to independent judges. The investment readiness program resulted in a 0.3 standard deviation increase in the investment readiness score, with this increase occurring throughout the distribution. Two follow-up surveys show that these judges' scores predict investment readiness and investment outcomes over the subsequent two years. Treated firms attain significantly more media attention, and are 5 percentage points (p.p.) more likely to have made a deal with an outside investor, although this increase is not statistically significant (95 confidence interval of -4.7 p.p., +14.7p.p.).

Keywords: entrepreneurship, equity investment, Innovation, Investment readiness, randomized controlled trial., start-ups

JEL Classification: L26, M13, M2, O12

Suggested Citation

Cusolito, Ana P. and Dautovic, Ernest and McKenzie, David John, Can Government Intervention Make Firms More Investment-Ready? A Randomized Experiment in the Western Balkans (August 2018). CEPR Discussion Paper No. DP13098. Available at SSRN: https://ssrn.com/abstract=3226873

Ana P. Cusolito (Contact Author)

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Ernest Dautovic

European Central Bank ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

David John McKenzie

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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