Product market competition, venture capital, and the success of entrepreneurial firms

Douglas J. Cumming; Giang Nguyen; My Nguyen

doi:10.1016/j.jbankfin.2022.106561

Product market competition, venture capital, and the success of entrepreneurial firms

Douglas J. Cumming^*, Giang Nguyen, My Nguyen

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

12 Citations (Scopus)

Abstract

We document a positive effect of product market competition (PMC) on venture capital (VC) staging. Employing large tariff rate reductions as an exogenous shock to PMC, we find that large tariff reductions lead to a greater likelihood of staged financing and a larger number of financing rounds. Cross-sectional analyses reveal that the effect is stronger for entrepreneurial firms that are younger, operate in high-tech and manufacturing industries, or receive investments from less reputable and inexperienced VCs. Our findings are consistent with the notion that by mitigating business uncertainty and survival risk, VC staging acts as a complement to PMC for enhancing entrepreneurial firms’ success.

Original language	English
Article number	106561
Pages (from-to)	1-16
Number of pages	16
Journal	Journal of Banking and Finance
Volume	144
DOIs	https://doi.org/10.1016/j.jbankfin.2022.106561
Publication status	Published - Nov 2022
Externally published	Yes

Keywords

Product market competition
Monitoring
Venture capital staging
Success

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10.1016/j.jbankfin.2022.106561

Cite this

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title = "Product market competition, venture capital, and the success of entrepreneurial firms",

abstract = "We document a positive effect of product market competition (PMC) on venture capital (VC) staging. Employing large tariff rate reductions as an exogenous shock to PMC, we find that large tariff reductions lead to a greater likelihood of staged financing and a larger number of financing rounds. Cross-sectional analyses reveal that the effect is stronger for entrepreneurial firms that are younger, operate in high-tech and manufacturing industries, or receive investments from less reputable and inexperienced VCs. Our findings are consistent with the notion that by mitigating business uncertainty and survival risk, VC staging acts as a complement to PMC for enhancing entrepreneurial firms{\textquoteright} success.",

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AU - Cumming, Douglas J.

AU - Nguyen, Giang

AU - Nguyen, My

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AB - We document a positive effect of product market competition (PMC) on venture capital (VC) staging. Employing large tariff rate reductions as an exogenous shock to PMC, we find that large tariff reductions lead to a greater likelihood of staged financing and a larger number of financing rounds. Cross-sectional analyses reveal that the effect is stronger for entrepreneurial firms that are younger, operate in high-tech and manufacturing industries, or receive investments from less reputable and inexperienced VCs. Our findings are consistent with the notion that by mitigating business uncertainty and survival risk, VC staging acts as a complement to PMC for enhancing entrepreneurial firms’ success.

KW - Product market competition

KW - Monitoring

KW - Venture capital staging

KW - Success

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Product market competition, venture capital, and the success of entrepreneurial firms

Abstract

Keywords

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