Venture Capital Financing, Patenting, and Long-Run Performance of Private Acquisitions

46 Pages Posted: 23 Jun 2010 Last revised: 12 Jul 2010

See all articles by Simona Fabrizi

Simona Fabrizi

Massey University

Steffen Lippert

University of Auckland - Department of Economics

Pehr-Johan Norbäck

Research Institute of Industrial Economics (IFN)

Lars Persson

Research Institute of Industrial Economics (IFN); Centre for Economic Policy Research (CEPR)

Date Written: March 15, 2010

Abstract

Our model reconciles seemingly contradictory empirical evidence on venture capital activity. Despite the venture capital-backed companies' superior long-run performance, stock markets react more negatively to their acquisitions than to other private acquisitions. Moreover, venture capital intensive industries show higher patent count, but not higher total factor productivity growth. We explain both contradictions through the venture capitalists' incentive to signal their companies' value prior to exiting. Such incentives increase their companies' investments, patenting, and performance; but inflate investment costs and acquisition prices. We generate novel testable predictions for the interaction of patent law, early-stage financing, and long-run performance of private acquisitions.

Keywords: venture capital, patenting, intellectual property rights, private acquisitions, long-run performance

JEL Classification: C70, D21, D82, G24, L20, M13, O30, O34

Suggested Citation

Fabrizi, Simona and Lippert, Steffen and Norbäck, Pehr-Johan and Persson, Lars, Venture Capital Financing, Patenting, and Long-Run Performance of Private Acquisitions (March 15, 2010). Massey U. College of Business Research Paper No. 13, Available at SSRN: https://ssrn.com/abstract=1629226 or http://dx.doi.org/10.2139/ssrn.1629226

Simona Fabrizi

Massey University ( email )

Auckland
New Zealand
+64 9 414 0800 Ext 9335 (Phone)
+64 9 441 8177 (Fax)

HOME PAGE: http://www.massey.ac.nz/~sfabrizi

Steffen Lippert (Contact Author)

University of Auckland - Department of Economics ( email )

Auckland
New Zealand

Pehr-Johan Norbäck

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Lars Persson

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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