Government as a Source of Capital for Entrepreneurs: Evidence from Entrepreneurial Exits
42 Pages Posted: 16 Apr 2016 Last revised: 31 Jan 2022
Date Written: April 14, 2016
Abstract
We examine the effect of government investment on the dollar value of entrepreneurial exits spanning 50 countries over the years 1990-2015. Data on over 8,500 entrepreneurial exits indicate that, relative to exits in which the investor base is purely non-government, private firm exits with government investment have higher dollar exit values. Subsample analysis on initial public offerings (IPOs) and mergers/acquisitions (M&A) suggests that the IPO exits drive these results with an average associated increase in IPO proceeds of $3.1 million. Our results suggest that governments enhance value when they provide capital when/where capital is scarce. Utilizing information on formalized policies regarding government roles in entrepreneurial investment, a univariate analysis suggests that the role the government plays is pivotal. The only investment value-enhancing role appears to be that of a Limited Partner, where government investors do not actively manage entrepreneurial firms. Results remain after various endogeneity and robustness checks are undertaken.
Keywords: Venture capital, government ownership, IPO, Acquisition, Valuation
JEL Classification: E6, G2, K2
Suggested Citation: Suggested Citation