Bank-Affiliated Venture Capital and the Financial Distress Risk of Portfolio Firms
32 Pages Posted: 21 Sep 2012 Last revised: 10 Jul 2013
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: Suggested Citation