The performance of venture capital investments: Do investors overreact?

Using a unique proprietary data set of over 5400 realized and unrealized venture capital investments between 1980 and 2005, we examine the impact of demand-related factors, e.g. entrepreneurial activity, as well as supply-related factors, i.e. money provided by VC investors, on the return of individual VC investments. This way, we are able to shed more light on the question whether volatile VC investment returns are rather driven by fundamental changes with regard to the number of attractive investment opportunities or by the overreaction by investors. We find that rising demand for VC, i.e. an increase in entrepreneurial activity, results initially in higher returns. However, our results also indicate that overreaction on the supply side can be observed, destroying deal-level results. Overfunding, specifically overinvesting seems to be a recurring characteristic of the VC industry. In fact, contra-cyclical investment strategies yield highest deal-level returns.     

Importance of spatial proximity between venture capital investors and investees in Germany

Based on 1182 dyads of venture capitalists and German portfolio companies involved in a financing round between 2002 and 2007, the study here examines the importance of spatial proximity between investors and investees in a dense economy. Analysis of this data shows that the probability of a financing relationship decreases by 8% if the journey time increases by one standard deviation. For deals involving very small or very large investment sums, and for less experienced venture capitalists and lead investors, spatial proximity is particularly important. The results suggest that even in economies with a dense infrastructure such as Germany spatial proximity between investor and investee impacts the likelihood of an investment.     

Obligatorische Versicherung gegen Schäden infolge von Naturkatastrophen

Wirtschaftsdienst - Wie schon die Hochwasserereignisse 2002 und 2013 haben auch die Folgen der Flutkatastrophe im Juli 2021 dramatisch die Notwendigkeit von gesellschaftlichen...     

Profits,dividends and industry restructuring: the Swedish paper and pulp industry between 1945 and 1977

This paper explores the role of profit distribution in the restructuring of the Swedish paper and pulp (P&P) industry between 1945 and 1977. In addressing this issue, we will draw on the life-cycle theory and market imperfection arguments to examine whether the less profitable firms shared more of their profits as dividends, or remained on the market longer by reinvesting the majority of the profits. Our study shows that an increasing share of the profits was distributed to owners over time, and thus less profit was reinvested in industrial renewal. We find that the observed general upward trend in dividends can be attributed to the decline in profit and firm legacy, as firms in the Swedish P&P industry kept dividends up while reducing reinvestment as their profit margins decreased over time. Our study shows that the market imperfections related to capital taxation and investment funds increased rather than decreased dividends.     

The importance of reciprocal spillover effects for the valuation of bestseller brands: introducing and testing a contingency model

The valuation of extension rights is critical for entertainment brands such as bestseller books. Building on brand extension research, we argue that accounting for the reciprocal spillover effect (i.e., the influence of an extension product on a parent brand) is important for determining the value of extension rights. We develop a contingency model of the reciprocal spillover effect for category extensions of entertainment products that are characterized by short life cycles and satiation effects. In the discussion of moderating factors, we pay particular attention to the new concept of backward integration, which accounts for the reaction of a parent to the introduction of an extension. Using data from all 446 literature adaptations produced for the big screen and theatrically released in North American theaters between 1998 and 2006, we provide evidence that extension success and marketing support impact the sales of the parent book and for several postulated moderating effects, including those of backward integration. Through simulation analyses, we demonstrate how considering the reciprocal effect in the managerial decision-making process can help entertainment managers to avoid biased estimations of category extension rights.     

Value creation and pricing in buyouts: Empirical evidence from Europe and North America

Using a unique proprietary data set of 1980 realized and unrealized buyouts completed between 1986 and 2010, we examine entry and exit pricing in buyouts and its influence on private equity (PE) sponsors' returns. We find that besides leverage and operational improvements, EBITDA multiple expansion (i.e. the difference between entry and exit pricing) is a fundamental factor in explaining equity returns and the result of skill rather than pure luck. We also provide evidence that more experienced PE sponsors use more debt to finance a PE transaction and debt is positively related to entry buyout pricing. However, for a transaction with a given leverage level, more experienced PE sponsors are able to negotiate lower prices. In addition, our results show that deals conducted by first time funds which are realized in a later stage of a fund's life cycle are associated with lower exit prices which can be explained by the increased exit pressure for the PE sponsor.     

Industry relatedness in trade sales and venture capital investment returns

We investigate relationships between the industry relatedness of venture capital-backed companies and their strategic acquirer in trade sales and the achieved investment returns of venture capitalists. Using a proprietary data set of 716 trade sales, we analyze return differences between lateral and synergetic trade sales, as well as between horizontal and vertical trade sales. We find that venture capitalists achieve higher returns with lateral rather than synergetic trade sales, and that the difference is greater for deals involving early stage companies characterized by strong information asymmetries. In addition, horizontal trade sales yield higher returns than vertical trade sales; however, in boom phases of the venture capital market, this effect reverses. Finally, we find that experienced venture capitalists are able to overcome disadvantageous situations in trade sales, resulting in comparable returns across all trade sale categories.     

Pre-release consumer buzz

“Buzz” during the period leading up to commercial release is commonly cited as a critical success factor for new products. But what exactly is buzz? Based on an extensive literature review and findings from a theories-in-use study (consumer depth interviews and focus groups), the authors argue that pre-release consumer buzz (PRCB) is not just a catchword or a synonym for “word of mouth” but is a distinct construct for which a precise, shared conceptual understanding is notably absent. The authors define PRCB as the aggregation of observable expressions of anticipation by consumers for a forthcoming new product; they conceptualize the construct as being manifested in three distinct types of behaviors (communication, search, and participation in experiential activities) along two dimensions (amount and pervasiveness). PRCB is unique because prior to, versus after, a product’s release, (1) differing information is available, (2) differing mental processes occur, and (3) consumers’ behaviors have differing effects on other consumers, affecting diffusion differently. A quantitative study using secondary data for 254 new products illustrates the performance of the theory-based conceptualization.