Investment Patterns of Informal Investors in the Alberta Private Equity Market*

This study identifies three main types of informal investors in private equity markets: relationship investors, opportunity‐based investors, and angel investors. We find evidence that the first two investor types are a major total source of capital and they prefer to invest smaller amounts close to home and in the context of existing relationships. With respect to angel investors, we find evidence of stratification in their desired investment amount which is consistent with a model where their investments evolve though a life cycle of investing. We also find evidence that changes to capital market regulations that allow for lower investment amounts by this type of investor increase the amount of capital available for early‐stage firms.     

Financial Liberalisations in Latin America in the 1990s: A Reassessment

This paper studies the experience of Latin America (LATAM) with financial liberalisation in the 1990s. The rush towards financial liberalisations in the early 1990s was associated with expectations that external financing would alleviate the scarcity of saving in LATAM, thereby increasing investment and growth. Yet, the data and several case studies suggest that the gains from external financing are overrated. The bottleneck inhibiting economic growth is less the scarcity of saving, and more the scarcity of good governance. A possible interpretation for these findings is that in countries where private savings and investments were taxed in an arbitrary and unpredictable way, the credibility of a new regime could not be assumed or imposed. Instead, credibility must be acquired as an outcome of a learning process. Consequently, increasing the saving and investment rates tends to be a time‐consuming process. This also suggests that greater political instability and polarisation would induce consumers to be more cautious in increasing their saving and investment rates following a reform. Hence, reaching a sustained take‐off in Latin America is a harder task to accomplish than in Asia.     

Angel Financing and the Performance of High‐Tech Start‐Ups

In this paper, we investigate what drives the performance of high‐tech start‐ups receiving angel financing, while taking a closer look at the capabilities (i.e., experience) and investment behavior of business angels (BAs). We exploit a new data set (extracted from Crunchbase), which consists of 1,933 high‐tech start‐ups that received at least one financing round from a BA. The results indicate that the experience of BAs in early stage investments is positively associated with additional receipt of follow‐on rounds of financing and sequential capital injections from venture capitalists (VCs). Later‐stage experience is positively associated with the start‐up's success (i.e., probability to be listed or acquired), but reduces the need for new VCs to invest in the start‐up. Furthermore, we find consistent evidence that start‐ups that combine BA and VC financing experience higher levels of funding amounts, additional VC financing, and an improved likelihood of success. Finally, we find that the co‐localization of BA investors and start‐ups in the same area facilitates the attraction of VC financing.     

The Impact of Financing Constraints and Agency Costs on Corporate R&D Investment: Evidence from China

This study investigates the association between financing constraints/agency problem (agency costs) and corporate R&D investment in China by using the two‐tier stochastic frontier model initially developed by Kumbhakar and Parmeter (2009) in light of the Euler equation analysis framework. The results show that there is a significantly negative association between financing constraints and firms' R&D investments and a significantly positive relationship between agency costs and R&D investments. Thus, financing constraints lead to R&D underinvestment, while agency costs cause R&D overinvestment by the sample firms. However, government subsidies have a positive moderating effect on the relationships. The impact of financing constraints and agency costs on R&D investment varies slightly by firms in different geographical regions, industries, business ownerships, and years.     

Private equity,investment and financial constraints: firm-level evidence for France and the United Kingdom

This paper analyses the effects of private equity firms on the investments and financial constraints of their portfolio firms. We use dynamic panel data techniques to account for unobserved firm heterogeneity and endogeneity of private equity backed buyouts and expansion financing, and apply our framework to a large panel data set of firms in the UK and France. In both countries, we find that portfolio firms are characterized by higher investment levels and fewer financial constraints after expansion financing. In the UK, private equity backed buyouts outperform non-private equity backed firms in terms of both indicators.     

Internal vs External Financing of R&D

The empirical evidence suggests that while small firms in United States, United Kingdom and Canada rely on internal funds for financing R&D, similar firms in Japan, Germany and France have access to bank loans. In this paper, we analyze the financial decisions of small firms willing to invest in R&D. We find that their high ratio of intangible assets, along with the high risk nature of their investments, can explain their inability to raise debt in external capital markets. We also show that financing R&D with bank loans might be feasible, especially, if banks are willing to monitor the investment activities of their clients.     

非正式投资影响因素研究：基于浙江创业观察的实证分析

虽然非正式资本是创业企业早期阶段重要的融资来源,但是并不清楚像中国这样的转型经济国家中个体非正式投资倾向的影响因素。文章利用浙江创业观察（2016）调查数据,从个体创业特质和创业活动参与两个方面,分析个体是否进行非正式投资以及他们的非正式投资去向的影响因素。研究结果表明,认识企业家和商业机会感知是影响个体非正式投资倾向两个最重要的因素,创业活动参与的不同类型对于个体的非正式投资倾向存在替代或者互补效应。文章最后对于发展非正式资本提出相应的对策建议。     

BETTER THAN DYNAMIC MEAN‐VARIANCE: TIME INCONSISTENCY AND FREE CASH FLOW STREAM

As the dynamic mean‐variance portfolio selection formulation does not satisfy the principle of optimality of dynamic programming, phenomena of time inconsistency occur, i.e., investors may have incentives to deviate from the precommitted optimal mean‐variance portfolio policy during the investment process under certain circumstances. By introducing the concept of time inconsistency in efficiency and defining the induced trade‐off, we further demonstrate in this paper that investors behave irrationally under the precommitted optimal mean‐variance portfolio policy when their wealth is above certain threshold during the investment process. By relaxing the self‐financing restriction to allow withdrawal of money out of the market, we develop a revised mean‐variance policy which dominates the precommitted optimal mean‐variance portfolio policy in the sense that, while the two achieve the same mean‐variance pair of the terminal wealth, the revised policy enables the investor to receive a free cash flow stream (FCFS) during the investment process. The analytical expressions of the probability of receiving FCFS and the expected value of FCFS are derived.     

政府研发补贴、融资约束与企业创新绩效——基于所有权性质视角

政府研发补贴是克服研发市场失灵,促进企业研发活动的重要手段之一。然而,目前鲜有关于考察政府研发补贴、融资约束以及所有权性质对企业创新绩效的复杂关系研究。基于2001—2018年间我国上市制造业企业数据分析,结果表明:首先,政府研发补贴和融资约束对企业创新绩效的影响取决于企业所有制性质,国有企业的创新绩效受其影响最为显著。其次,企业在接受政府研发补贴后,其融资约束的程度都会被减缓;与国有企业相比,政府研发补贴对民营企业融资约束的缓解更强。最后,对任何所有权性质的企业而言,政府研发补贴都会挤出企业的研发投资。     

Socially Responsible Institutional Investment in Private Equity

This article studies institutional investor allocations to the socially responsible asset class. We propose two elements influence socially responsible institutional investment in private equity: internal organizational structure, and internationalization. We study socially responsible investments from Dutch institutional investments into private equity funds, and compare socially responsible investment across different asset classes and different types of institutional investors (banks, insurance companies, and pension funds). The data indicate socially responsible investment in private equity is 40–50% more common when the decision to implement such an investment plan is centralised with a single chief investment officer. Socially responsible investment in private equity is also more common among institutional investors with a greater international investment focus, and less common among fund-of-fund private equity investments.     

Business Angel Networks and the Development of the Informal Venture Capital Market in the U.K.: Is There Still a Role for the Public Sector

Business angel networks (BANs) provide a channel of communication between private venture capital investors (business angels) and entrepreneurs seeking risk capital. Most operate locally on a not-for-profit basis with their costs underwritten by the public sector. However, the recent establishment of BANs by private sector organisations in the U.K. has led to a questioning of the government's continuing role in the financing of BANs. This paper demonstrates that there are significant differences between public sector and other not-for-profit BANs and private sector, commercially-oriented BANs in terms of the investments that they facilitate. Private sector BANs are primarily involved with larger, later stage deals whereas investments made through not-for-profit BANs are generally smaller, involve start-ups and other early stage businesses and are local. The emergence of private sector BANs has therefore not eliminated the need for public sector support for locally-oriented networks.     

Investment in Transition Economies

Summary

All centrally planned economies suffered from overinvestment. Due to low capital productivity, reasonable growth rates in output could be maintained only with high investment/GDP ratios. Nevertheless, the sharp reduction in investment during transformational recession and its slow growth during subsequent recovery are viewed as negative phenomena, since transition economies offer numerous opportunities to increase output with relatively small targeted investment.

This paper seeks to develop and test two major hypotheses. The first one explains the behavior of aggregate investment during transition: we find that changes in external financing (current account balance), in the government budget deficit and in the institutional capacity of the state (as measured by the share of government revenues in GDP) explain up to 75% of the variations in investment/GDP ratios during transition, while the progress in reforms (cumulative liberalisation index) and in privatisation (share of the private sector in GDP) do not matter a great deal. With respect to sources of investment financing, there is some evidence that better investment performance is supported by budgetary funds, by credits to the private sector and by the strength of the stock market, whereas foreign aid is a substitute rather than a complement (i.e., it is negatively related to investment) and the inflow of foreign direct investment is not important.

The second hypothesis deals with the impact of investment on economic performance as measured by changes in GDP during transition: we find that differences in performance arc, in great part, associated not with investment patterns, but with varying marginal capital productivity. The latter in turn is determined mainly by differing magnitudes of restructuring required in various countries, i.e., by the distortions in industrial structure and trade patterns inherited from central planning, and by the institutional capacity of the state (as measured by the share of shadow economy and government revenues in GDP). The degree of liberalisation in this case appears to be a relatively important determinant of capital productivity, while the rates of inflation are not.     

内外融资对企业不同阶段创新投资的异质性效应——基于中国制造业上市公司的数据

根据创新价值链理论，将企业创新活动分为研究阶段（R）与开发阶段（D），探究内外源融资方式对企业不同创新阶段投资的异质性效应，为企业选择创新活动的融资渠道和政府设计精准支持企业创新政策提供参考。基于中国制造业上市公司数据实证研究发现：内源融资对企业研究投资有显著促进效应，对开发投资未产生显著促进作用；债权融资对研究投资和开发投资的作用均不显著；股权融资对研究投资的影响不显著，但对开发投资具有显著影响。内源融资对债权融资与研究投资、债权融资与开发投资的关系不具有调节效应；内源融资对股权融资与研究投资关系具有正向显著调节效应，对股权融资与开发投资的关系具有正向调整作用但不显著。     

Patents and Early‐Stage Financing: Matching versus Signaling

This paper investigates the role of patents on early‐stage financing. We consider two questions: are patents signals of quality and why do patents relate to venture capital (VC) financing but not angel financing? Analyzing data from 468 Canadian early‐stage ventures, we show that patents are not signals of quality. Instead, the data support a match‐on‐financing need hypothesis: ventures match with VCs, who have financial capacity to support their patent protection strategies.     

How to Design Public Venture Capital Funds: Empirical Evidence from South Korea

This study examines the effects of several features of government‐managed, sponsored venture capital (VC), and private VC funds on overall VC investments in new technology‐based firms (NTBFs) during two developmental stages (i.e., growth and restructuring) in South Korean VC market and suggests hints for designing effective government VC programs. Our results from data on 463 funds in the period 1995–2005 indicate the factors bearing a positive effect on VC investments targeted to NTBFs. Such factors are the fund specialization focusing on certain industrial sectors, performance‐sensitive compensation for venture capitalists in private and government VC funds.     

我国供水行业融资体制改革探讨

我国供水行业长期以来融资渠道单一,投资严重不足,造成供求矛盾突出。近年来,我国一些城市尝试推行股份制、引进外资等多元化融资方式,初步取得成效。但改革实践中暴露出我国供水融资管理体制中的诸多问题,制约了改革的进一步深化。针对这些问题,借鉴国外经验,并结合我国公用事业总体改革,采取以下对策:制定有关法规,规范政府管理;实行政企分离,建立高效率的行业管制机构;采取补贴递减,保证企业投资回报。     

How does capital control spur economic growth?

This paper provides a conceptual and empirical framework for evaluating the effect of capital controls on long‐term economic growth. In a small open economy which relies on successful investment projects to provide capital goods, taking out short‐term loans has two contradictory impacts: (i) it reduces the interest costs of financing investment projects; and (ii) it also leads to larger asset losses in the scenario of short‐term debt run. In this work, we hypothesise that private financing decisions made by domestic investors are distorted towards excessive risk‐taking, leading to ineffective capital formation. Thus, capital control policies, particularly regulations on short‐term loans, can be socially beneficial as they alter the debt composition, promote capital formation and achieve a higher output level. Using a panel data set covering 77 countries from 1995 to 2009, we employ a system generalised method of moments (GMM) estimator to sequentially test three hypotheses and find strong empirical evidence that supports our theory.     

Assessing mission drift at venture capital impact investors

In this article, we consider a recent trend whereby private equity available from venture capital (VC) firms is being deployed toward mission‐driven initiatives in the form of impact investing. Acting as hybrid organizations, these impact investors aim to achieve financial results while also targeting companies and funds to achieve social impact. However, potential mission drift in these VCs, which we define as a decoupling between the investments made (means) and intended aims (ends), might become detrimental to the simultaneous financial and social goals of such firms. Based on a content analysis of mission statements, we assess mission drift and the hybridization level of VC impact investors by examining their missions (ends/goals) and their investment practices (means) through the criteria of social and financial logic. After examining eight impact‐oriented VC investors and their investments in 164 companies, we find mission drift manifest as a disparity between the means and ends in half of the VC impact investors in our sample. We discuss these findings and make suggestions for further studies.     

Decentralization and Firm Investments: Evidence from China

Taking advantage of decentralization reform that enlarges the authority of county government in China, we construct a quasi‐experiment. Using a large sample of Chinese firms, we show that after the implementation of decentralization reform, firms located in decentralized counties experienced a significant increase in investment expenditure compared with other firms. We also find that after the decentralization reform, state owned enterprises (SOEs) experienced greater increase in investment expenditure on average compared with non‐SOEs, and that, within non‐SOEs, collective firms have an even larger increase in investments, followed by foreign firms and private firms. Further analysis shows that the influence of decentralization reform was more significant in more developed markets, and that the increased investment was associated with improved productivity, which was more pronounced in SOEs. These results are robust to an alternative sample and endogeneity issues. Overall, these findings support the view that decentralization reform improves government efficiency and creates positive externalities, thereby encouraging firms to invest.     

Financing constraints and US cross‐listing

This study investigates whether relaxation of firms' financial constraints is an important outcome of the US cross‐listing mechanism. We use the association between investment spending and cash flow to test for the presence and importance of firms' financing constraints. Consistent with the bonding hypothesis, the results suggest that US exchange and private placement cross‐listings significantly alleviate firms' financing constraints. In addition, the financial benefits associated with exchange listings are larger than those associated with private listings, while on the other hand, over‐the‐counter programs do not improve capital allocation. The study also shows that US exchange cross‐listing benefits have not been eroded by the enactment of the Sarbanes‐Oxley (SOX) Act in 2002. Copyright © 2014 ASAC. Published by John Wiley & Sons, Ltd.