Bank-Affiliated Venture Capital and the Financial Distress Risk of Portfolio Firms

32 Pages Posted: 21 Sep 2012 Last revised: 10 Jul 2013

See all articles by Annalisa Croce

Annalisa Croce

Polytechnic University of Milan - Dipartimento di Economia e Produzione

Diego D'Adda

Polytechnic University of Marche

Elisa Ughetto

Politecnico di Torino

Date Written: June 30, 2013

Abstract

We analyze a sample of European high-tech entrepreneurial firms that received bank venture capital (BVC) financing between 1994 and 2004. We employ a “two-step” matching procedure in order to build a control group composed of i) comparable firms that received venture capital financing from independent investors (IVCs) and ii) comparable non-invested firms. Our econometric analyses suggest that, on the one hand, BVC investors are more risk adverse than other typologies of investors and are more interested to the risk profile of the firms in which they invest. In fact, before the first round of financing, BVC-backed firms show a lower risk of financial distress, both compared to IVC-backed firms and non-invested matched firms. On the other hand, in line with the relationship banking and the VC signaling theories, we find that, after the investment, BVC-backed firms exhibit a significant increase in debt exposure, compared to non-invested firms.

Keywords: bank-affiliated VC, independent VC, financial distress risk, debt exposure, high-tech entrepreneurial firms

JEL Classification: G21, G24

Suggested Citation

Croce, Annalisa and D'Adda, Diego and Ughetto, Elisa, Bank-Affiliated Venture Capital and the Financial Distress Risk of Portfolio Firms (June 30, 2013). Available at SSRN: https://ssrn.com/abstract=2149558 or http://dx.doi.org/10.2139/ssrn.2149558

Annalisa Croce (Contact Author)

Polytechnic University of Milan - Dipartimento di Economia e Produzione ( email )

Piazza Leonardo da Vinci, 32
Milan, 20133
Italy

Diego D'Adda

Polytechnic University of Marche ( email )

P.zza Roma 22
Ancona, 60121
Italy

Elisa Ughetto

Politecnico di Torino ( email )

Corso Duca degli Abruzzi, 24
Torino, Torino 10129
Italy

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