IDEAS home Printed from https://ideas.repec.org/p/ecl/stabus/3007.html
   My bibliography  Save this paper

The Impact of Venture Capital Monitoring: Evidence from a Natural Experiment

Author

Listed:
  • Bernstein, Shai

    (Stanford University)

  • Giroud, Xavier

    (MIT)

  • Townsend, Richard

    (Dartmouth College)

Abstract

We examine whether venture capitalists contribute to the innovation and success of their portfolio companies, or merely select companies that are already poised to innovate and succeed. To do so, we exploit exogenous reductions in monitoring costs stemming from the introduction of new airline routes between venture capital firms and their existing portfolio companies. Within an existing relationship, we find that reductions in travel time are associated with an increase in the number of patents and number of citations per patent of the portfolio company, as well as an increase in the likelihood of an eventual IPO or acquisition. These results are robust when controlling for local shocks that could potentially drive the introduction of the new airline routes. We further document that the effect is concentrated in routes that connect lead VCs with portfolio companies, as opposed to other investors. Overall, these results are consistent with the monitoring channel and hence indicate that venture capitalists' physical presence at their portfolio companies is an important determinant of innovation and success.

Suggested Citation

  • Bernstein, Shai & Giroud, Xavier & Townsend, Richard, 2014. "The Impact of Venture Capital Monitoring: Evidence from a Natural Experiment," Research Papers 3007, Stanford University, Graduate School of Business.
  • Handle: RePEc:ecl:stabus:3007
    as

    Download full text from publisher

    File URL: http://www.gsb.stanford.edu/faculty-research/working-papers/impact-venture-capital-monitoring-evidence-natural-experiment
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Drivas, Kyriakos & Gounopoulos, Dimitrios & Konstantios, Dimitrios & Tsiritakis, Emmanuel, 2018. "Trademarks, Firm Longevity and IPO Underpricing," MPRA Paper 89430, University Library of Munich, Germany.
    2. Ramana Nanda & William R. Kerr, 2015. "Financing Innovation," Annual Review of Financial Economics, Annual Reviews, vol. 7(1), pages 445-462, December.
    3. Ramana Nanda & William R. Kerr, 2015. "Financing Innovation," Annual Review of Financial Economics, Annual Reviews, vol. 7(1), pages 445-462, December.
    4. Troy D. Smith, 2015. "Private Equity Investment in India: Efficiency vs Expansion," Discussion Papers 15-011, Stanford Institute for Economic Policy Research.
    5. repec:zbw:bofrdp:urn:nbn:fi:bof-201512141480 is not listed on IDEAS
    6. repec:zbw:bofrdp:2015_028 is not listed on IDEAS
    7. repec:bof:bofrdp:urn:nbn:fi:bof-201512141480 is not listed on IDEAS

    More about this item

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ecl:stabus:3007. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/gsstaus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.