Government as a Source of Capital for Entrepreneurs: Evidence from Entrepreneurial Exits

42 Pages Posted: 16 Apr 2016 Last revised: 31 Jan 2022

See all articles by Douglas J. Cumming

Douglas J. Cumming

Florida Atlantic University; Birmingham Business School; European Corporate Governance Institute (ECGI)

April M. Knill

University of South Carolina - Darla Moore School of Business

Kelsey Syvrud

Florida State University; University of South Florida - Department of Finance

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

Cumming, Douglas J. and Knill, April M. and Syvrud, Kelsey, Government as a Source of Capital for Entrepreneurs: Evidence from Entrepreneurial Exits (April 14, 2016). Available at SSRN: https://ssrn.com/abstract=2764927 or http://dx.doi.org/10.2139/ssrn.2764927

Douglas J. Cumming

Florida Atlantic University ( email )

777 Glades Rd
Boca Raton, FL 33431
United States

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

Birmingham Business School ( email )

Edgbaston Park Road
Birmingham, B15 2TY
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://https://ecgi.global/users/douglas-cumming

April M. Knill (Contact Author)

University of South Carolina - Darla Moore School of Business ( email )

1014 Greene Street
University of South Carolina
Columbia, SC 29208
United States
18502949216 (Phone)

Kelsey Syvrud

Florida State University ( email )

Tallahasse, FL 32306
United States

University of South Florida - Department of Finance ( email )

Tampa, FL 33620-5500
United States

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