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Article

Jaclyn J. Beierlein and James Nelson

Prior research suggests that institutional investors prefer higher priced stock, while individual investors prefer lower priced stock. The purpose of this paper is to…

Abstract

Purpose

Prior research suggests that institutional investors prefer higher priced stock, while individual investors prefer lower priced stock. The purpose of this paper is to examine whether the IPO filing price reflects firm characteristics that are commonly associated with quality, including size, age, earnings, underwriter reputation and venture capital backing.

Design/methodology/approach

The authors used t-tests, Wilcoxon rank sum tests, logistic and ordinary least squares regressions to test the hypotheses.

Findings

The authors find that IPO filing prices are positively related to measures of quality, except venture backing, which impacts prices non-linearly. Ceteris paribus, small (large) venture backed firms’ filing prices are set significantly lower (higher).

Research limitations/implications

Firm managers set IPO filing prices high when they believe the firm is likely to attract institutional investors due to its size, quality and certification, and will set prices low otherwise.

Practical implications

Individual investors should be wary of IPO firms with lower prices. Managers should be cognizant of the positive relationship between IPO quality and price.

Originality/value

This study provides evidence that IPO prices reflect firm quality and may be set deliberately to attract individual investors when institutional investor demand is expected to be low. It also provides evidence that venture backing affects IPO prices non-linearly, consistent with the grandstanding hypothesis.

Details

Managerial Finance, vol. 45 no. 4
Type: Research Article
ISSN: 0307-4358

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Article

Yipeng Liu

The purpose of this paper is to investigate how institutional voids influence high‐tech ventures' innovation, and what strategies high‐tech entrepreneurs deploy to cope…

Abstract

Purpose

The purpose of this paper is to investigate how institutional voids influence high‐tech ventures' innovation, and what strategies high‐tech entrepreneurs deploy to cope with the institutional environments they encounter.

Design/methodology/approach

A qualitative research approach was taken. In‐depth interviews were conducted with nine high‐tech entrepreneurs. In addition, governmental officials, overseas associations, and professional investors were interviewed for more/further observations.

Findings

Institutional voids may negatively influence high‐tech ventures' innovation. They might be moderated by guanxi and government active involvement. On the contrary, institutional voids can offer high‐tech entrepreneurs the opportunity to create innovative business models. The co‐evolution of institutional developments and high‐tech ventures illustrates the particular characteristics of Chinese entrepreneurial environment.

Research limitations/implications

Qualitative study cannot simply be generalized, albeit this explorative study provides illustrative insights. Quantitative research (e.g. surveys), which is applied to test the propositions, calls for further scholarly inquiry.

Practical implications

Overseas entrepreneurs are presented with the opportunities to pursue an entrepreneurial career. SMEs from developed economies may join the movement with technology entrepreneurs to enter the Chinese market and co‐shape the market development.

Originality/value

Institutional voids were conceptualized from a multi‐dimensional perspective, namely national, regional, and individual. By providing qualitative evidence, different mechanisms to fill the institutional voids are explored.

Details

Journal of Chinese Entrepreneurship, vol. 3 no. 2
Type: Research Article
ISSN: 1756-1396

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Article

Richard Harrison and Colin Mason

Concern about the equity gap in the UK has existed for more than 60 years. Despite various government measures and institutional responses (e.g. the development of a…

Abstract

Concern about the equity gap in the UK has existed for more than 60 years. Despite various government measures and institutional responses (e.g. the development of a venture capital industry) an equity gap still persists. Current debate has recognized the role of the informal venture capital market as a source of risk capital for SMEs. Argues that this market is both inefficient and underdeveloped, due largely to information deficiencies which hinder contact between potential investors and entrepreneurs seeking finance. Against this background, identifies the role of business angel networks (BANs) as a key means of stimulating the flow of informational venture capital in the UK. In particular, a government scheme to provide pump‐priming assistance to establish five local BAN demonstration projects is shown to have achieved impressive results. However, with the recent emergence of a number of private sector BANs, the continued role of government is now being questioned. Further demonstrates that public sector BANs, operating on a local scale, are filling a different market niche from that of private sector BANs, which operate predominantly on a national scale. Concludes that the top priority for policy is to ensure that all parts of the UK are served by local BANs. An appropriate way forward might be to build on experimental networking arrangements between local, public sector BANs and national, privately operated BANs.

Details

International Journal of Entrepreneurial Behavior & Research, vol. 2 no. 2
Type: Research Article
ISSN: 1355-2554

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Article

Monika Dhochak and Anil Kumar Sharma

The purpose of this paper is to identify and rank critical factors influencing investment decisions of venture capitalists.

Abstract

Purpose

The purpose of this paper is to identify and rank critical factors influencing investment decisions of venture capitalists.

Design/methodology/approach

To identify and prioritize factors affecting investment decisions of venture capitalists, a two-phase methodology was adopted: in the first phase, critical factors influencing venture capitalists’ investment decisions were identified using exploratory factor analysis; the second phase entailed the use of a multi-criteria decision-making technique – analytical hierarchal process (AHP) which involved assigning weights to, and prioritizing the identified criteria and sub-criteria.

Findings

Seven factors were found to significantly influence investment decisions of venture capitalists: entrepreneur’s characteristics, product or services, market characteristics, management skills, financial consideration, economic environment and institutional and regulatory environment. Findings revealed that entrepreneur’s characteristics, financial consideration and product or services were prime influencers of venture capitalists’ investment decisions.

Research limitations/implications

As for limitations, first, the study considers limited number of factors influencing investment decisions of venture capitalists; there may be other influencers not considered in this study. Second, the AHP methodology assumes that the various decision-making criteria and sub-criteria are independent of each other; in real life, there may be inter-dependency among criteria. Third, the hierarchal model has been tested in the Indian venture capital industry only, and generalizability of results with respect to other industries is questionable.

Practical implications

The present study identifies and ranks seven factors found to significantly influence investment decisions of venture capitalists. Venture capitalists could use this list of factors as a guideline before making investment decisions, and if considering all factors is not possible, take into account the factors given top rank so that they arrive at informed and intelligent decisions.

Originality/value

This study is the first to identify economic factors (economic environment and institutional & regulatory environment) as influencers of venture capitalists’ investment decisions. Further, no study in the past has attempted to rank or prioritize factors influencing venture capitalists’ investment decisions; this is the first attempt of the kind.

Details

Journal of Small Business and Enterprise Development, vol. 23 no. 4
Type: Research Article
ISSN: 1462-6004

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Article

David Lingelbach

How does venture capital (VC) emerge in emerging and developing economies? This paper aims to use case data from an early Russian VC fund to extend a previous model…

Abstract

Purpose

How does venture capital (VC) emerge in emerging and developing economies? This paper aims to use case data from an early Russian VC fund to extend a previous model exploring that question.

Design/methodology/approach

Case studies of VC emergence from South Africa, Botswana, and Russia are compared, from which a conceptual model is developed.

Findings

VC emerges in a process consisting of four stages: enabling, coproducing, diffusing, and replicating. The Russian case shows that these stages are linked in a circular process, i.e. replicating can lead to enabling. VC emergence can also begin at any stage. A higher degree of public‐private coproduction may outweigh the absence of a completed enabling stage, suggesting that strength in one stage can compensate for weakness in others.

Research limitations/implications

This paper invites scholars to reconsider VC emergence in a more nuanced manner that takes into account its complex, processual nature. The inclusion of Russian data also encourages researchers to examine more closely the subtle ways in which the private and public sectors may interact in emerging markets in pursuit of common goals. This study's findings have important linkages with other critical accounts of international business. The study addresses weaknesses in earlier literature by employing a multi‐disciplinary, cross‐context approach that utilizes data from a foreign VC investing in Russian small to medium‐sized enterprises.

Practical implications

VCs considering investment in Russia should examine how early entrants to the industry formed cooperative relationships with local governments. Policymakers should re‐examine the relative importance of national and local efforts to promote VC and other innovation‐related initiatives in emerging markets.

Originality/value

This study moves beyond current economics‐dominated understanding of VC, which focuses on antecedents (enabling conditions). It reports the central role of public‐private coproduction in VC emergence, the feedback between diffusion and coproduction in emergence, and, most importantly, the diminished importance of enabling conditions. This paper presents the first fund‐level study of Russian VC.

Details

Critical perspectives on international business, vol. 9 no. 1/2
Type: Research Article
ISSN: 1742-2043

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Article

Colin M. Mason and Richard T. Harrison

Changes in the macroeconomy, combined with changesin bank lending practices, have created a more difficult financingenvironment for small businesses in the UK in the…

Abstract

Changes in the macroeconomy, combined with changes in bank lending practices, have created a more difficult financing environment for small businesses in the UK in the 1990s. Notes increasing encouragement for small businesses to seek venture capital as an alternative, but points out evidence both of a lack of venture capital for firms seeking less than £500,000 and a belief that small firms are unwilling to seek venture capital. Challenges these views and points out the advantages to the banks of an informal venture capital market. Considers ways for banks to encourage such activity.

Details

International Journal of Bank Marketing, vol. 14 no. 1
Type: Research Article
ISSN: 0265-2323

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Article

Saeed Shojaei, Mahmood Motavaseli, Ali Bitaab, Hasti Chitsazan and Ghanbar Mohammadi Elyasi

This paper aims to explore the barriers that constrain the venture capital (VC) financing in Iran based on the institutional theory.

Abstract

Purpose

This paper aims to explore the barriers that constrain the venture capital (VC) financing in Iran based on the institutional theory.

Design/methodology/approach

To answer the question, “How institutional barriers constrain the VC financing in Iran?”, 31 detailed interviews were conducted, and the interviewed data were analysed by using the grounded theory method.

Findings

There exist several institutional barriers (formal and informal) in different stages of the VC investment process in Iran. Major formal institutional deficiencies include lack of appropriate financial regulations, inefficacy in tax, labour, property rights, financial disclosure, bankruptcy, investor’s protection laws and regulations, lack of credit rating/scoring system, inefficacy in small and medium-sized enterprise-supporting policies and capital market underdevelopment. Moreover, there exist some informal institutional barriers such as culture of capitalism disapproval, culture of secrecy, individualistic customs and weakness of managerial skills that constrain VC activities in Iran.

Research limitations/implications

The research findings imply that the government’s role should change from “establishment of government-sponsored VC funds” to “enforcement of institutional reforms that lead to an appropriate framework for VC investment”.

Originality/value

This paper has made three key contributions. First, it has provided comprehensive insights into how institutional barriers constrain the VC investment in a developing country. Second, a new stage-wise model is proposed for analysing the VC investment process. Third, existing knowledge about the role of both formal and informal institutions in the VC investment is extended.

Details

Journal of Entrepreneurship in Emerging Economies, vol. 10 no. 3
Type: Research Article
ISSN: 2053-4604

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Article

Vance H. Fried and Robert D. Hisrich

Venture capital is a major source of financing for entrepreneurial businesses. Given the importance of venture capital financing to venture creation and regional economic…

Abstract

Venture capital is a major source of financing for entrepreneurial businesses. Given the importance of venture capital financing to venture creation and regional economic development, it is not surprising that venture capital has emerged as a topic of interest to entrepreneurs and public policy makers, as well as a subject of some academic research. This research has mainly focused on the composition of venture capital fund portfolios, decision‐making criteria used by venture capitalists, and the post‐investment role of the venture capitalists. The role of the investor in the venture capital fund — the people whose money fuels the entire process — has been largely ignored (Fried & Hisrich, 1988).

Details

Management Research News, vol. 15 no. 4
Type: Research Article
ISSN: 0140-9174

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Article

Kevin McNally

The availability of external equity finance is a key factor in thedevelopment of technology‐based firms (TBFs). However, although a widevariety of sources are potentially…

Abstract

The availability of external equity finance is a key factor in the development of technology‐based firms (TBFs). However, although a wide variety of sources are potentially available, many firms encounter difficulties in securing funding. The venture capital community, particularly in the UK, has done little to finance early stage TBFs and has failed to cater adequately for the specific value‐added requirements of these firms. Non‐financial companies have the potential to become an important alternative source of equity finance for TBFs through the process of corporate venture capital (CVC) investment. Based on a telephone survey of 48 UK TBFs that have raised CVC, examines the role of CVC in the context of TBF equity financing. Shows that CVC finance has represented a significant proportion of the total external equity raised by the survey firms and has been particularly important during the early stages of firm development. In addition, CVC often provides investee firms with value‐added benefits, primarily in the form of technical‐ and marketing‐related nurturing and credibility in the marketplace. Concludes with implications for TBFs, large companies, venture capital fund managers and policy makers.

Details

International Journal of Entrepreneurial Behavior & Research, vol. 1 no. 3
Type: Research Article
ISSN: 1355-2554

Keywords

Content available
Article

Matteo Rossi, Giuseppe Festa, Armando Papa, Ashutosh Kolte and Rossana Piccolo

Institutional venture capitalists (IVCs) and corporate venture capitalists (CVCs) deploy analogous activities but adopt different approaches to financing innovation and…

Abstract

Purpose

Institutional venture capitalists (IVCs) and corporate venture capitalists (CVCs) deploy analogous activities but adopt different approaches to financing innovation and value creation for venture-backed firms. Thus, this paper aims to investigate their potential ambidexterity as a result of knowledge management (KM) strategies and processes.

Design/methodology/approach

After a focused literature review showing evidence of KM behaviors as a source of potential ambidexterity for IVCs and CVCs, descriptive, inferential and discriminant analyses on the 15 most active IVCs and CVCs in the world in 2019 are presented. Correlations between numbers of deals, prevailing entrepreneurial intensity and potential ambidexterity are investigated.

Findings

Specific differences are analyzed from a KM perspective, revealing that the number/percentage of operations per round can result as a misleading criterion of knowledge accumulation. Finally, a theoretical model for ambidexterity for venture capitalists is developed.

Originality/value

The study shows that IVCs act with greater investment capacity because of their organizational structure and purpose and focus on financial goals; moreover, they are ambidextrous, although their exploration may more frequently entail exploitation than “real” exploration. CVCs tend to invest in sectors related to their core business, coherent with their strategic purpose and more oriented with KM strategies for accumulating intellectual capital.

Details

Journal of Knowledge Management, vol. 24 no. 10
Type: Research Article
ISSN: 1367-3270

Keywords

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