Product Market Competition, Venture Capital, and the Success of Entrepreneurial Firms

56 Pages Posted: 6 Dec 2021

See all articles by Douglas J. Cumming

Douglas J. Cumming

Florida Atlantic University

Giang Nguyen

Waseda University - Faculty of Political Science and Economics

My Nguyen

RMIT- School of Economics, Finance and Marketing

Date Written: December 1, 2021

Abstract

We document a positive effect of product market competition (PMC) on venture capital (VC) staging. Employing large tariff rate reductions as an exogenous shock to PMC, we find that large tariff reductions lead to a greater likelihood of staged financing and a larger number of financing rounds. Cross-sectional analyses reveal that the effect is stronger for entrepreneurial firms that are younger, operate in high-tech and manufacturing industries, or receive investments from less reputable and inexperienced VCs. Our findings are consistent with the notion that by mitigating business uncertainty and survival risk, VC staging acts as a complement to PMC on enhancing entrepreneurial firms’ success.

Keywords: Product market competition; Monitoring; Venture capital staging; Success

JEL Classification: G24, G34

Suggested Citation

Cumming, Douglas J. and Nguyen, Giang and Nguyen, My, Product Market Competition, Venture Capital, and the Success of Entrepreneurial Firms (December 1, 2021). Available at SSRN: https://ssrn.com/abstract=3975122 or http://dx.doi.org/10.2139/ssrn.3975122

Douglas J. Cumming (Contact Author)

Florida Atlantic University ( email )

777 Glades Rd
Boca Raton, FL 33431
United States

HOME PAGE: http://sites.google.com/view/douglascumming/bio?authuser=0

Giang Nguyen

Waseda University - Faculty of Political Science and Economics ( email )

1-6-1 Nishiwaseda
Shinjuku
Japan

My Nguyen

RMIT- School of Economics, Finance and Marketing ( email )

445 Swanston Street
Melbourne, Victoria 3001
Australia
+61 3 9925 5450 (Phone)

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