closing the regional equity gap a critique of the department of trade and industry s regional venture capital funds initiative mason c m and harrison r t 2003 closing the regional equity gap a critique of the department of trade and industry s regional venture capital funds initiative reg studies 37 855 868 the uk labour government has provided support for the establishment of regional venture capital funds in each of the english regions as part of its drive to create an entrepreneurially led knowledge based economy this initiative is a response to persistent gaps in the provision of start up and early stage venture capital in this paper we question the likely effectiveness of the initiative on four counts first there is a lack of early stage venture capital skills available to manage the funds second the small size of the funds will make it difficult for them to achieve financial viability third the funds are targeting the wrong problem the maximum investment that they are allowed to make is 250 000 they may subsequently provide up to an additional 250 000 in follow on financing however the main fundin

informational asymmetries strategic behavior and industrial organization one of the most active and exciting areas of economic research over the last several years has been the use of noncooperative games of incomplete information to model industrial competition this work has yielded not only a remarkable number of papers but also several new insights on and explanations of fundamentally important issues the purpose of this paper is to attempt an appreciation and evaluation of this work because most of our individual and joint work since about 1979 has been in this mode it will come as no surprise that we are proponents of this line of research however there are several questions and potential problems that we see as arising in connection with this methodology and we will attempt to address these first a disclaimer we are not attempting a survey of the applications of asymmetric information games aig to industrial organization although we will refer in a highly selective fashion to a number of prominent strands in this literature in particular where any references are provided at all they are typically only to the earliest contributions to a subject even more we do not deal with work in which informational asymmetries are important but the analysis is not game theoretic for example search and price dispersion or the early work on the lemons problem and on moral hazard and adverse selection in insurance markets or with game theoretic treatments that assume complete information i aig methods and applications

a pure financial explanation for trade credit this paper provided a pure financial explanation for the existence of trade credit and for the values of the credit terms offered to customers two motives for extending trade credit were identified the pure operating flexibility motive arises because the opportunity to change credit policy provides the seller an efficient way to respond to fluctuations in demand this motive was eliminated from consideration in this paper by assuming constant demand the seller must hold a liquid reserve when the financial markets are imperfect and the desire to earn an excess rate of return on this reserve explains the pure financial intermediary motive for trade credit the pure financial incentive to lend this liquid reserve to customers was examined by viewing a market borrowing rate of interest that exceeds the market lending rate of interest as a hindrance to trade or equivalently as a financial market tariff this tariff imposes a wedge between the market prices paid and received for the product plus a loan and thereby inflicts a loss of surplus on the seller and buyers trade credit lending enables the seller and or the buyers to recapture at least part of this loss when the source of the tariff does not apply to direct loans to customers financial market tariffs caused by transactions costs fulfill this requirement because the trade credit lender s familiarity with its customers and product provide it with information and collection cost advantages over financial intermediaries tariffs caused by financial intermediary rents fulfill this requirement as well because the parties to a trade credit loan do not employ the services of a financial intermediary increasing opportunity costs and financial market imperfections in addition to the ones described above establish the limits of credit policy the optimal amount of accounts receivable is derived from the condition that the marginal revenue of trade credit lending is equal to the marginal cost this condition combined with factoring costs produces a unique finite optimal credit period accrual accounting for income tax purposes imposes an additional restriction because the firm is taxed on the recovery of its opportunity costs these limitations on credit policy were examined separately in this paper for clarity but they are in effect simultaneously in practice

the regional financial sector a scottish case study dow s c 1992 the regional financial sector a scottish case study reg studies 26 619 631 the regional finance literature suggests that financial market segmentation may affect regional economic activity but that the uk financial sector is sufficiently integrated to rule out this effect this paper attempts to broaden the scope of the debate by considering the credit creating behaviour of the banking sector together with the interdependent financial behaviour of all other sectors in a region it is concluded that financial behaviour in this broad sense affects regional activity even in an integrated national financial market in particular financial integration may adversely affect the allocation of new credit to a peripheral region the argument is assessed by considering the scottish case dow s c 1992 le secteur financier regional cas d etude de l ecosse reg studies 26 619 631 la documentation relative au secteur financier regional laisse supposer que la segmentation du marche finan

venture capital the regions and public policy the united kingdom since the post 2000 technology crash mason c and pierrakis y venture capital the regions and public policy the united kingdom since the post 2000 technology crash regional studies the geography of venture capital in the united kingdom has been shaped since the year 2000 by a significant increase in public sector venture capital funds venture capital investments are now less concentrated in the south east however investment activity in the midlands and north is dominated by the public sector deal sizes in these regions are small venture capital measured by the total amount invested remains over concentrated in london and the south east where private sector investors continue to dominate this paper concludes by questioning whether this increased dependence of northern regions on public sector venture capital matters mason c and pierrakis y 2000 2000

investment and economic growth abstract the paper revisits the old question how much does investment contribute to economic growth building on recent work of maurice scott it suggests that the analysis of growth in developing as in the industrial countries would benefit from a capital accumulation approach in the following analysis economic growth is related to three variables all greatly influenced by the quality of economic policies the rate of investment the social rate of return to investment and the investment induced returns to labor

why has the investment performance of technology specialist european venture capital funds been so poor abstract this paper seeks to identify and model the key parameters which impact on the commercial performance of a specialist technology focused early stage venture capital fund using both input costs and output expected values data provided by a number of specialist independent venture capital firms a spreadsheet model of a 10 year term fund is developed these figures are used to generate internal rate of return irr and net present value npv performance calculations for the investment commitments of both the institutional limited partners and venture capitalist general partner the generically defined model allows the user to address both conceptual and pragmatic questions regarding the relationship between fund structure and performance the model is further developed to determine the effect on fund performance of two venture capital related indirect state support schemes guarantee and leverage options iterative interrogations of the model demonstrate the sensitivity of economic returns to the scale of the investment activity state supported schemes mitigate but do not remove the negative performance consequences of small fund size a fund with under 15 million us 25 million or ecu21 million under management is of increasing economic vulnerability

spatial patterns of canadian venture capital investment mcnaughton r b and green m b 1989 spatial patterns of canadian venture capital investment reg studies 23 9 18 this paper explores the spatial pattern of canadian venture capital investment surveys of both venture capital investors and their portfolio firms provide new insights into this rapidly expanding industry venture capital investors are shown to be highly concentrated and regionally biased in their portfolio selections log linear analysis demonstrates a significant regional variation in the industrial sector characteristics of portfolio firms the pattern of canadian venture capital investment is interpreted as the aggregate result of the efforts of venture capitalists to minimize uncertainty and reduce the inherent risk of their ventures prospects for continuing research are discussed mcnaughton r b et green m b 1989 la distribution geographique du capital risque canadien reg studies 23 9 18 cet article examine la distribution geographique du capital risque canadien des

interest rates and convergence across italian regions dow s montagnoli a and napolitano o interest rates and convergence across italian regions regional studies the purpose of this paper is to investigate the evidence for economic convergence across italian regions using trends in interest rate spreads and premia as indicators of regional credit conditions the results indicate the presence of persistent interest rate differentials and thus an absence of convergence across the twenty political regions but a high degree of convergence is observed within the four macroeconomic areas dow s montagnoli a and napolitano o 20 dow s montagnoli a et napolitano o les taux d interet et la convergence a travers les regions italiennes regional studies a partir des tendances des marges d interet sur les credits et des primes sur les taux d interet comme indicateurs des conditions de credit regionales cet article cherch

sources of growth abstract distributive shares are commonly identified with sector or marginal factor productivity in value terms and after deflating these values by prices with physical productivity as well in this paper it is argued that this approach yields incorrect or misleading views on the true sources of or contributions to growth even more serious the identification may lead to mistaken policies designed to foster or accelerate growth in reality distributive shares in the national accounts have little to do with physical productivity or the sources of growth

funding for innovation in small firms the role of government abstract this paper examines some of the issues facing innovative small firms the shortage of enterprise funding for such small firms can be explained by the uncertainty associated with such ventures uncertainty which is magnified in the case of hightechnology firms we characterise the uncertainty as an information gap both technological and commercial which is exacerbated by an asymmetry of interest between the founders of a firm and private sector sources of finance we explore the sources of this uncertainty and examine the effect that one government scheme the small firms merit awards for research and technology smart has had in offsetting such problems some suggestions for improvements in policy in the light of the experience of smart are put forward

altruistic investment decision behavior in early stage ventures in this study we develop and test a gendered social capital model of altruistic investment behavior that explains why some informal investors expect high returns on their investments while others expect no payback at all prior literature predominantly assumes that informal investors engage in investment activities with a return on investment and profit in mind however other non financial objectives for informal investment e g altruistic informal investment have also been suggested although their antecedents unexplored we suggest altruistic investment behavior depends on life circumstances determined by social capital gender and their combination our empirical evidence supports these propositions

the role of venture capital in financing small business abstract venture capital is a primary and unique source of funding for small firms because these firms with sales and or assets under 5 million have very limited access to traditional capital markets venture capital is a substitute but not a perfect substitute for trade credit bank credit and other forms of financing for small firms small businesses are not likely to be successful in attracting venture capital unless the firms have the potential to provide extraordinary returns to the venture capitalist this study provides an analysis of a survey of venture capital firms that participate in small business financing the survey participants are venture capital firms that were 1986 members of the national venture capital association nvca the largest venture capital association in the united states the average size of the venture capital firms responding to the survey is 92 million dollars in assets with a range from 600 thousand to 500 million twenty three percent of the respondents have total assets below 20 million and 27 have assets above 100 million the venture capitalists investment assets held in small firms delineate the supply of venture capital to small firms sixty three of the 92 venture capitalists have more than 70 of their assets invested in small firms the venture capitalists were asked how their investment plans might change with changes in the tax law that were projected in the spring of 1986 fifty four percent expected to increase their investments in small firms and 38 did not expect to change these activities venture capitalists are very selective in allocating their resources the average number of annual requests that a venture capitalist receives is 652 and the median number is 500 only 11 5 of the respondents receive more than 1 000 proposals per year

analyst forecast consistency we show empirically that analysts who display more consistent forecast errors have greater ability to affect prices and that this effect is larger than that of stated accuracy these results lead to three implications first consistent analysts are less likely to be demoted and are more likely to be nominated all star analysts second analysts strategically deliver downward biased forecasts to increase their consistency if at the expense of stated accuracy finally the benefits of consistency and of lowballing accuracy are increasing decreasing in institutional investors presence

venture capital and high technology entrepreneurship abstract venture capital clearly plays an important role in high technology entrepreneurship the purpose of this article is to explain the differences among various venture capital complexes focusing on where venture capital is important to innovation and entrepreneurship and conversely where it is not we do so through an empirical and historical examination of the seven most important venture capital complexes california san francisco silicon valley massachusetts boston new york illinois chicago texas connecticut and minnesota minneapolis we establish a three part tripartite typology for explaining the differences between these venture capital complexes 1 technology oriented complexes are located close to concentrations of high technology intensive businesses invest most of their funds locally and are net attractors of capital 2 finance oriented complexes are located around financial institutions and export their capital and 3 hybrid complexes mix characteristics of both technology and finance oriented venturing our findings have a series of important practical implications although venture capital is not absolutely necessary to facilitate high technology entepreneurship well developed venture capital networks provide tremendous incentives for entrepreneurship by lowering the difficulties of entering an industry venture capitalists use both their experience and their contacts to reduce many of the information and opportunity costs associated with new business formation the importance of contact networks and information to both deal flow and investment monitoring goes a low way toward explaining why venture capitalists cluster tightly together the availability of venture capital also attracts entrepreneurs and high quality personnel to a region creating a virtuous circle of new enterprise formation innovation and economic development private nonprofit and subsidized public efforts aimed at providing venture capital and stimulating high technology entrepreneurship must confront the fact that venture capital alone will not magically generate entrepreneurship and economic development it is important that such efforts recognize the nonfinancial side of venture investing and attract experienced personnel who can tap into established entrepreneurial networks and secure coinvestors more significantly establishing public venture funding in an area lacking the requisite entrepreneurial climate or technology infrastructure may create a catch 22 situation where locally oriented funds invest in bad deals or where venture capital is simply exported to established high technology regions

informal risk capital investors investment patterns on the east coast of the u s a abstract in this study we profile a group of informal investors their investment criteria and the nature of their referral network the study supports the findings of several earlier studies it indicates the existence of an extensive informal investment community on the east coast of the u s a which can provide substantial financial resources to startup and young firms a full 58 of the sample investments were in startups a huge proportion compared with formal venture capital sources the study further supports earlier findings that this group is difficult to locate for entrepreneurs and researchers alike this opaque market consists primarily of friends and business colleagues who individually provide modest sums of money 20 000 50 000 but are often able to use their network to assemble a group of investors who will sponsor the entire funding requirement 130 informal investors report that in three years they and their networks raised 38 million dollars to support 286 new venture proposals there are also encouraging indications that these angels are both enthusiastic and persistent many of them claim that they have achieved higher returns via angel activity than any other investment options that they have tried of the angels who did better with alternative investment options more than 80 are still prepared to make further investments even those who reported failed investments in the informal risk capital market remain supportive over 65 indicate a willingness to invest again the criteria by which the angels screen the proposals differ markedly from those of the venture capital community in particular the angels do not appear to be interested in a thorough business plan a sine qua non for venture capitalists unlike the capital firms angels are not interested in competitive insulation they do not limit their investments to industries that are appealing or with which they are familiar nor do they care very much about the degree to which the entrepreneur has identified competition however they are in close agreement with the venture capital community in their concern with the management ability of the venture team and a requirement that there be a clear demonstrated need for the product or service preferably in a market with large potential the study has shed some light on the structure of the referral networks of angels though we do not know from this study how the respondents themselves first heard of the ventures that were described in this survey we do know that their referral network is composed primarily of friends and business colleagues to whom they refer as much as 60 of the proposals that they receive and in which they themselves eventually invest thus they pass on serious opportunities to their network their referees are inclined to be very supportive in our sample almost 75 of them also invested in the venture the current strategy for informal investors is to approach mainly close contacts these are inclined to be supportive 85 also invested in the venture and to follow a trusting investment behavior pattern relying mainly on the recommendation of the angel this strategem ensures that the total capital requirements are met via the network however given the results of this study the angels might be well advised not to stop here they might also approach at least one professional only a small proportion of professionals were approached by our sample of angels less than 30 as the study shows professionals are more effective at selecting successful ventures thus a mixed strategy may be called for use mainly trusting referees to ensure full capitalization and a limited number of professional referees to screen the proposals this will help ensure that those proposals that do get supported by the more trusting members of the network have been competently screened thus increasing to the probability of venture success a discriminant analysis revealed some useful pointers in helping the informal investor select successful ventures first it is critical to select only ventures in which the entrepeneur can be relied on to evaluate the risks of the ventures and manage these risks well angels do not need entrepreneurs that will gamble with their money equally important is to avoid placing too much credence on highly articulate sales pitches by the venture team or too much reliance on ventures in which the main emphasis is on product and proprietary protection rather insist on being shown clear evidence that the product or service has channel and or market acceptance it is also important for angels to stick to investments where they know the industry well and to back venture teams with a solid reputation and a propensity to get involved in the details rather than gloss them over as in the case of studies of venture capital investments competitive insulation in the early stages of the venture is also important

retracted relationship incentives and the optimistic pessimistic pattern in analysts forecasts we examine whether analysts incentives to maintain good relationships with management contribute to the optimistic pessimistic within period time trend in analysts forecasts in our experiments 81 experienced sell side analysts from two brokerage firms predict earnings based on historical information and management guidance analysts forecasts exhibit an optimistic pessimistic pattern across the two timing conditions early and late in the quarter and the effect is significantly stronger when the analysts have a good relationship with management than when their only incentive is to be accurate debriefing results indicate that analysts are aware of this pattern of forecasts and believe that this benefits their future relationships with management and with brokerage clients the analysts most frequently cite favored conference call participation and information access when describing benefits from maintaining good relationships with management our results suggest the following the optimistic pessimistic pattern in forecasts is in part a conscious response to relationship incentives information access is perceived to be a major benefit of management relationships and recent regulatory changes may have lessened but have not eliminated this conflict of interest source

a temporal analysis of earnings surprises profits versus losses i show that median earnings surprise has shifted rightward from small negative miss analyst estimates by a small amount to zero meet analyst estimates exactly to small positive beat analyst estimates by a small amount during the 16 years 1984 to 1999 i show that a rightward temporal shift in median surprise from negative to positive describes earnings but neither profits nor losses median profit surprise shifts within the positive quadrant from zero to one cent per share median loss surprise shifts within the negative quadrant from extreme negative about 33 cents per share to zero i show that the median surprise for profits exceeds that for losses in every year i document significant positive temporal trends in both meet and beat analyst estimates for both profits and losses but i find a greater frequency of profits that either meet or beat analyst estimates in every year i find a significant positive temporal trend in positive profits that are a little bit of good news and a significant negative temporal trend in managers who report losses that are an extreme amount of bad news my results are robust to the four internal validity threats i consider namely temporal changes in 1 analyst forecast accuracy 2 the mix of earnings of one sign preceded by earnings of another sign four quarters ago 3 the timeliness of the most recent analyst forecast and 4 the i b e s definition of actual earnings i find that managers of growth firms are relatively more likely than managers of value firms to report good news profits i show that when they do report positive profit surprises managers of growth firms are more likely to report a little bit of good news in every year

angels and non angels are there differences abstract the market for informal venture capital is an elusive and nearly invisible source of financing for entrepreneurial ventures this market consists of a diverse set of high net worth individuals business angels who invest a portion of their assets in high risk high return entrepreneurial ventures the emerging consensus of the characteristics of the individual investor is that of a well educated middle aged individual with considerable business experience and a substantial net worth these informal investors appear to prefer investing in the early start up stage of the venture and if given a choice prefer that their investments be located close to home one consequence of this consensus is the tendency to assume that the traits of these business angels are as tightly clustered around the norm as are the traits of venture capital funds they are not in terms of their competence in the many areas of venture investing these individual investors range from the successful cashed out entrepreneur on the one hand to individuals with little or no experience with venture investing on the other at the same time little is known about the characteristics of high net worth individuals who never ventured where angels dare to tread or about these non angels propensity to join the fold thus this study seeks to fill the void by examining the characteristics of high net worth individuals regardless of their investment history or their interest in venture investing an analysis of the data reveals three groups of high net worth individuals business angels with experience investing in entrepreneurial ventures interested potential investors with no venture investment history but who express a desire to enter the venture investment market and uninterested potential investors who under no circumstances would consider investing in entrepreneurial ventures as part of their investment strategy business angels and potential investors both the interested and non interested segment share similar views about the economic significance of the entrepreneur and the difficulty in securing the equity capital for development of the venture as the issues move from the general to the specific divergence in investment attitudes takes place among the two groups but this divergence is in terms of magnitude or intensity rather than in contrasting or opposing views of the process the potential investor tends to view investing in entrepreneurial ventures on a smaller scale than the active investor especially in terms of the dollar amount committed to any one investment while the business angel is more interested than the potential investor across all stages of financing the interest for both groups increases as the type of financing progresses from the seed stage to expansion financing in contrast the potential investor is more likely to seek diversification as a motivation for venture investing than their angel counterparts the potential investor pool is segmented into those potential investors who appear willing to take on the role of business angels and those individuals who have no desire to participate in the venture market for the interested group to increase their interest in providing venture capital these potential investors want assistance in monitoring the performance of the venture investment followed by assistance in pricing and structuring both of these resources relate more to the technical aspects of venture investing and indicate that these are the areas where the potential investor is least likely to have expertise other resources such as finding and evaluating the investment opportunity appear to represent less of a stimulus for the potential investor in many respects interested potential investors act like business angels across several dimensions both consider the later stages of the development of the venture as the preferred stage to invest the business angel and interested potential investor prefer investments to be located relatively close to their primary residence and share similar views on the amount of the investment portfolio to allocate to venture investing where the interested potential investor and business angel clearly differ is on the scale of the commitment and the motivation for investing the potential investor will commit a smaller dollar amount to any one venture is more inclined to participate with other investors and is more apt to see venture investing as a diversification strategy than is the seasoned business angel

inefficiency in analysts earnings forecasts systematic misreaction or systematic optimism a rational analysis of analyst behavior predicts that analysts immediately and without bias incorporate information into their forecasts several studies document analysts tendency to systematically underreact to information underreaction is inconsistent with rationality other studies indicate that analysts systematically overreact to new information or that they are systematically optimistic this study discriminates between these three hypotheses by examining the interaction between the nature of information and the type of reaction by analysts the evidence indicates that analysts underreact to negative information but overreact to positive information these results are consistent with systematic optimism in response to information the literature on financial analysts defines the phrase forecast inefficiency to mean forecasts that fail to accurately incorporate new information on a timely basis and or that are biased these forecasts have also been described as irrational or suboptimal prior studies report inefficiency in analysts forecasts finding that they are upwardly biased and inaccurately reflect available information some studies conclude from this that analysts underreact to information other studies conclude that analysts overreact if markets treat analysts forecasts as both rational and statistically optimal then inefficient forecasts could have important implications for the efficiency of pricing in securities markets in this paper we reexamine the apparent tendency of analysts to misinterpret earnings information the intent of this study is to discriminate between three hypotheses 1 that analysts systematically underreact to new earnings information 2 that analysts systematically overreact to new earnings information and 3 that analysts are systematically optimistic in their reactions for hypotheses 1 and 2 the direction of the misinterpretation i e underor overreaction is independent of the nature of the information received in contrast hypothesis 3 predicts that analysts are optimistic in interpreting

the importance of equity finance for r d activity this article analyzes the importance of equity finance for the r d activity of small and medium sized enterprises we use information on almost 6 000 german smes from a company survey using the intensity of banking competition at the district level as an instrument to control for endogeneity we find that a higher equity ratio is conducive to a higher r d intensity owners may only start r d activities if they have the financial resources to sustain them until successful completion we find a larger influence of the equity ratio for young companies equity may be more important for young companies which have to rely on the original equity investment of their owners since they have not yet accumulated retained earnings and can rely less on bank financing

analyst forecasting errors additional evidence analyst forecasting errors are approximately as large as dreman and berry 1995 documented and an optimistic bias is evident for all years from 1985 through 1996 in contrast to their findings i show that analyst forecasting errors and bias have decreased over time moreover the optimistic bias in quarterly forecasts was absent for sp 2 firms with comparatively large amounts of market capitalization absolute value of earnings forecast and analyst following and 3 firms in certain industries

closing the regional equity capital gap the role of informal venture capital there is evidence from a number of countries that small firms encounter a shortage of long term investment finance particularly at start up and initial growth expansion of the institutional venture capital industry has done little to fill this equity gap on account of its preference for making large investments in established companies and management leveraged buyouts moreover the supply of venture capital exhibits a high level of spatial concentration initiatives by state provincial and local governments most notably in economically lagging regions to increase the supply of risk capital for start ups and early stage businesses have at best provided a very partial and often costly solution a more appropriate approach to increasing the supply of start up and early stage finance is to facilitate the more efficient operation of theinformal venture capital market informal investors or business angels are private investors who provide risk capital directly to new and growing businesses in which they have no family connection most business angels are unable to find sufficient investment opportunities and so have substantial uncommitted funds available there is also considerable scope for expanding the population of business angels the most cost effective means of closing the equity gap is therefore for the public sector to underwrite the operating costs of business introduction services whose objective is to overcome the two main sources of inefficiency in the informal venture capital market namely the invisibility of business angels and the high search costs of angels seeking investment opportunities and entrepreneurs seeking investors by the provision of a channel of communication between informal investors and entrepreneurs seeking finance

conflicts between entrepreneurs and investors the impact of perceived unethical behavior this paper examines the impact of perceived unethical behavior by entrepreneurs angel investors and venture capitalists on their conflict process for this purpose we use an embedded case study design to provide a diversity of perspectives on the topic at hand from the eye of the beholder i e investor entrepreneur or both 11 conflict situations were analyzed for any perceived unethical behavior based on findings from within and cross case analysis we propose that perceived unethical behavior among venture partners triggers conflicts between them through increased fault attribution or blaming further we propose that perceived unethical behavior affects venture partners choice of conflict management strategy and increases the likelihood of conflict escalation and of conflict having a negative partnership outcome such as failure or another form of involuntary exit as such this paper contributes to the entrepreneurship literature by addressing calls for more research on the darker sides of investor investee relationships

assessment of government funding of business angel networks in flanders collewaert v manigart s and aernoudt r assessment of government funding of business angel networks in flanders regional studies the paper evaluates whether government intervention through the subsidization of business angel networks bans enhances regional economic growth in flanders belgium it shows that firstly bans reduce the information and financing problems entrepreneurial companies face secondly that these companies contribute to economic development and growth thirdly that there are positive indicators of future potential such as an upward evolution in value creation and the ability to raise follow on financing finally the programme has many positive indirect effects this leads to a tentative conclusion that public ban support is warranted however to make this conclusion more robust requires a longer term evaluation collewaert v manigart s et aernoudt r une evaluation des finances publiques en faveur des reseaux de bailleurs de fonds en flandres regional studies on cher

investors reactions to management earnings guidance the joint effect of investment position news valence and guidance form we report the results of an experiment that shows that investors earnings and investment related judgments are jointly influenced by their investment position long versus short the news valence of guidance issued by management and the amount of ambiguity in the guidance prior research indicates that guidance form point versus range has no effect on investors earnings estimates made in reaction to management guidance we extend this research by showing that guidance form matters conditional on investment position and news valence similarly prior research indicates that investors who hold long short positions in a stock are more optimistic pessimistic about the company s prospects we extend this research by showing that the effect of investment position documented in prior studies is conditional on news valence and guidance form we contribute to prior literature on the effects of investment position and guidance form by delineating boundary conditions for each of these effects

policy review section in this policy review section gerry stoker of the institute of local government studies presents a critical review of the role of urban development corporations udcs in comparing the experience of the udcs consideration is given to the varying nature of the land and property market in each udc area to the relationship with local authorities and other local bodies and the regeneration strategies pursued by the udcs this is followed by an assessment of the impact of the udcs in economic social and political terms in the second article john britton of the university of toronto examines the theoretical case for interventionist public policies to assist the innovation process in small and medium sized enterprises these arguments are supported by a review of the experience of various national support programmes introduced in the uk in particular the manufacturing advisory service introduced in 1978 and the design advisory service launched in 1982

who bankrolls high tech entrepreneurs abstract where do new technology based firms ntbfs raise outside equity capital to answer that question financial histories were collected from 284 technology based firms founded in new england between 1975 and 1986 financial histories included the year of each round of financing the source the amount and the stage of the financing the 284 firms represented 27 of 1 073 new england ntbfs founded between 1975 and 1986 contained in corptech s corporate technology database one hundred seven 38 were launched with no outside equity investors one hundred seventy seven firms 62 raised 671 million in 445 rounds of equity financing private individuals excluding the founding management team and their relatives were the most common source of equity capital providing 177 rounds of financing for 124 firms ninety firms raised equity from venture capital funds in 173 rounds of financing fewer than 40 firms raised capital from any other single source nonfinancial corporations public stock offerings and other the sample firms raised 76 million from private individuals but almost five times that amount 370 million from venture capital funds public stock offerings accounted for 122 million for all investors the size of a round of financing tended to increase with the stage of the financing overall a typical round of individual investor financing was under 500 000 a typical round of financing from venture capital funds was between 1 million and 3 million public stock offerings typically exceeded 4 million seed and start up financing accounted for 60 of the rounds and 54 of the dollars provided by private individuals as compared to 28 of the rounds and 20 of the dollars provided by venture capital funds the most significant outcome of this research is the conclusion that private individuals and venture capital funds play complementary rather than competing roles in the financing of ntbfs this complementary relationship has two dimensions size and stage at all stages venture capital funds tend to invest substantially more dollars per round than do private individuals second compared to a significantly higher propensity to invest at the seed and start up stages than other investors private investors appear to have longer exit horizons and less risk aversion in fact private individuals provided the seed capital that launched the majority of ntbfs in the sample

disruption disintegration and the dissipation of differentiability this paper proposes a deductively derived model to help managers who preside over decisions to integrate or outsource to assess ex ante whether when and why it might be strategically and competitively important to develop internal capabilities to perform certain activities in house and when it would be sensible and safe to outsource elements of value added among the paper s conclusions are that the competitive advantage from vertical integration is strongest in tiers of the market where customers are under served by the functionality or performance available from products in the market vertical integration tends to be a disadvantage when customers are over served by the functionality available from products in the market vertically integrated firms will therefore often dominate in the most demanding tiers of markets that have grown to substantial size while a horizontally stratified or disintegrated industry structure will often be the dominant business model in the tiers of the market that are less demanding of functionality

the financing of business start ups abstract this article investigates the determinants of capital structure and types of financing used around business start ups utilizing a survey that reduces the confounding effects of survivorship bias in particular the influence of start up size asset structure organization type growth orientation and owners characteristics are examined both in the choice and in the magnitude of finance use the results are consistent with the theoretical models incorporating issues such as information asymmetries agency theory and transaction costs the results also demonstrate linkages among providers of finance maturity of assets and the capital structure of start ups while the results provide insights into business finances near the time of creation some recommendations for future research are discussed

market positioning the shifting effects of niche overlap organizational ecology models of market dynamics emphasize the competitioninducing role of inter organizational niche overlap targeting similar market niches increases competitive pressure and thus reduces organizations fitness recent studies however have suggested that moderate niche overlap may positively influence organizational viability by enhancing comparability and promoting legitimacy spillovers data on consumers impressions of dutch music festivals and on the growth and decline of early internet search engines were used to test the proposition that niche overlap may in fact be non monotonically related to organizational fitness since new organizations must first gain recognition by being comparable to others they will benefit more from niche overlap than older incumbents the results confirm that both the appeal that organizations generate as well as their growth rates are non monotonically related to niche overlap and that positive effects of niche overlap decrease with organizational age

undermining the financial basis of regions the spatial structure and implications of the uk pension fund system martin r and minns r 1995 undermining the financial basis of regions the spatial structure and implications of the uk pension fund system reg studies 29 125 144 regional growth theory and regional policy traditionally focus on the process of industrial development relatively little is known about the flows of money and financial capital that shape that development this paper examines the spatial organization and implications of the uk pension fund system one of the principal circuits of financial capital in the national economy it is shown how the great bulk of pension fund contributions that originate right across the various regions of the uk are channelled into and controlled by financial institutions in the south east of the country moreover those funds are then invested primarily back into companies and organizations located or headquartered in the south east this spatially centralized system pursues liquidity rather than productive investment and little of the money trickles down to

a model of venture capitalist investment activity the paper describes the activities of venture capitalists as an orderly process involving five sequential steps these are 1 deal origination the processes by which deals enter into consideration as investment prospects 2 deal screening a delineation of key policy variables which delimit investment prospects to a manageable few for in depth evaluation 3 deal evaluation the assessment of perceived risk and expected return on the basis of a weighting of several characteristics of the prospective venture and the decision whether or not to invest as determined by the relative levels of perceived risk and expected return 4 deal structuring the negotiation of the price of the deal namely the equity relinquished to the investor and the covenants which limit the risk of the investor 5 post investment activities the assistance to the venture in the areas of recruiting key executives strategic planning locating expansion financing and orchestrating a merger acquisition or public offering 41 venture capitalists provided data on a total of 90 deals which had received serious consideration in their firms the questionnaire measured the mechanism of initial contact between venture capitalist and entrepreneur the venture s industry the stage of financing and product development ratings of the venture on 23 characteristics an assessment of the potential return and perceived risk and the decision vis i vis whether to invest the modal venture represented in the database was a start up in the electronics industry with a production capability in place and seeking 1 million median in outside financing there is a high degree of cross referrals between venture capitalists particularly for the purposes of locating co investors factor analysis reduced the 23 characteristics of the deal to five underlying dimensions namely 1 market attractiveness size growth and access to customers 2 product differentiation uniqueness patents technical edge profit margin 3 managerial capabilities skills in marketing management finance and the references of the entrepreneur 4 environmental threat resistance technology life cycle barriers to competitive entry insensitivity to business cycles and down side risk protection 5 cash out potential future opportunities to realize capital gains by merger acquisition or public offering the results of regression analyses showed expected return to be determined by market attractiveness and product differentiation r2 0 22 perceived risk is determined by managerial capabilities and environmental threat resistance r2 0 33 finally a discriminant analysis correctly predicted in 89 4 of the cases whether or not a venture capitalist was willing to commit funds to the deal on the basis of the expected return and perceived risk the reactions of seven venture capitalists who reviewed the model s specification were used to test its validity

do uk venture capitalists still have a bias against investment in new technology firms abstract the growing economic and political importance of the new economy throughout 1990s has added greater saliency to both supply and demand sides policy oriented questions about the availability of venture capital as a catalyst for new or high technology based early stage investments this paper analyses the changing attitudes of uk venture capital firms to investment in technology enterprises a 1999 survey of 60 uk venture capital firms was structured to be directly comparable to a 1991 study the main findings demonstrate the increasing importance of technology investments to vc firms particularly generalists accordingly the adoption of collaborative strategies to access intellectual capital and complimentary resources via inter firm networks is particularly important the authors conclude that despite material improvements a bias is likely to remain against vc firms involvement in the earliest seed and start up stages of the technology investment cycle

do security analysts improve their performance with experience we investigate if sell side security analysts generate more accurate quarterly earnings forecasts and more profitable stock recommendations as their experience following a specific firm increases we measure firmspecific experience as the number of prior quarters for which the analyst has issued an earnings forecast for the firm if analysts improve their forecasting performance with repetition as suggested by the learning by doing lbd model an analyst s earnings forecasts will become more accurate with experience prior empirical work provides mixed evidence on whether analysts exhibit individual forecasting performance differences e g butler and

determinants of small firm debt ratios an analysis of retail panel data in this paper the relevance of some debt ratio determinants from the recent theory of finance is empirically investigated in a small business sector the data used in this study consist of average financial data of 27 shoptypes in 20 different years covering a period of 24 years the panel character of the data facilitates the use of analytical techniques aimed at reducing or avoiding the biasing effect of omitted variables on the outcomes the main conclusion is that the theoretical determinants appear indeed to be relevant for the small business sector investigated here but the influences encountered in the analyses are far less straightforward than the hypothesized effects in the theory influences on total debt are frequently found to be the net effects of opposite influences on long and short term debt and some variables show large time and industry specific effects further distinct patterns in the time specific effects were found

have uk venture capitalists a bias against investment in new technology based firms abstract this paper addresses the important question for innovation policy of whether or not uk venture capital firms show a bias against investing in technology based new and young enterprises the evidence from uk and us industry statistics indicates that pro rate american venture capital invest nearly three times as much finance into technology based start up and early stage investments as their uk counterparts when later stage mbo lbo investments are removed from the data us venture capital firms are also more likely to invest at the earlier stages of investment while the uk industry has increasingly come to be dominated by management buy outs buy ins and other later stage refinancing activities in 1991 a postal survey was conducted of 40 investing firms from a population of 75 uk venture capitalists which currently invest or are prepared to consider investing in technology based companies the sample was segregated into generalist funds and technology specialists depending on the percentage greater or less than 50 of technology based investee companies within the venture capitalists current portfolios the results confirmed that technology projects had to meet more rigorous selection criteria than non technology projects in undertaking technology based project evaluations investors imposed higher investment return hurdle rates at each stage of investment other than seed capital technology based projects were also more frequently required to address minimum markets greater than the uk alone when compared to other investment categories no material bias was found between the actions of generalist and specialist funds towards technology based projects the ratio of technology based projects offered to technology based projects accepted was similar for both groups

analysts reactions to earnings preannouncement strategies preannouncements of earnings tend to overstate negative or understate positive news which decreases the chance of a negative surprise when actual earnings is announced we conduct an experiment to investigate how experienced sell side analysts earnings forecasts are affected by preannouncements that either understate accurately state or overstate the magnitude of positive or negative total earnings news holding total earnings news constant we find that firms with negative positive total news receive the highest post earnings announcement forecasts of future earnings when the earlier preannouncement overstates understates the magnitude of the news these forecasts are consistent with the analysts perceptions about the firms future prospects but not their perceptions of management while analysts expect preannouncements to be lower than actual earnings they do not adjust their forecasts for these beliefs these insights into analysts responses have implications both for managers and analysts

the effect of issuing biased earnings forecasts on analysts access to management and survival this study offers evidence on the earnings forecast bias analysts use to please firm management and the associated benefits they obtain from issuing such biased forecasts in the years prior to regulation fair disclosure analysts who issue initial optimistic earnings forecasts followed by pessimistic earnings forecasts before the earnings announcement produce more accurate earnings forecasts and are less likely to be fired by their employers the effect of such biased earnings forecasts on forecast accuracy and firing is stronger for analysts who follow firms with heavy insider selling and hard to predict earnings the above results hold regardless of whether a brokerage firm has investment banking business or not these results are consistent with the hypothesis that analysts use biased earnings forecasts to curry favor with firm management in order to obtain better access to management s private information

developing indicators to inform local economic development in england based on a conceptual framework of 11 factors that are widely perceived to be the major determinants of local economic development led 29 indicators were identified to measure these factors pri

angel investors around the world we document that the choice between disintermediated individual angel investments and intermediated private equity and venture capital investments depends on legal economic and cultural differences we find evidence of this using pitchbook s comprehensive data on more than 5000 angel and 80 000 private equity and venture capital investments in 96 countries from 1977 to 2012 the data further indicate that investee firms funded by angels are less likely to successfully exit through either an ipo or an acquisition these findings are robust to propensity score matching methods as well as to clustering standard errors and excluding u s observations among other approaches

the relationship between the level of capital expenditures and firm value when a firm s management needs to raise external capital in order to finance an invest ment project it is likely to have better information about the project s future return than do potential investors in such a case as has been shown in the literature management may be able to signal its information through the use of certain financial variables how ever the possibility that management may be able to use the level of investment in the project itself to signal their information has not been considered the purpose of this paper is to examine this possibility it is shown here that the level of capital investment may be able to perfectly reveal management s information with a higher input level signalling more favorable information it is further demonstrated that even in this equilibrium finan cial variables still play an important role among other results it is shown in contrast to a conclusion of a study by leland and pyle that in this setting the number of shares held by management may be negatively correlated with the favorableness of their information

informal risk capital in sweden and some international comparisons abstract in many countries there seems to be a shortage of risk capital i e equity or equity linked capital for entrepreneurial ventures seeking external capital as a consequence many entrepreneurial ventures are undercapitalized with a high loan capital burden there is some evidence from the u sa that informal investors provide an essential source of equity capital to entrepreneurial ventures however our knowledge about the informal risk capital markets is dominated by research from the u s a and there are few studies carried out in other countries this study represents the first description of the informal risk capital market in sweden the aim of the study is also to compare the characteristics of informal investors in sweden with those in the u sa and the u k information from 52 informal investors is used for the description of the informal risk capital market in sweden an international comparison is made by using the results of studies by gaston 1989 on informal investors in the u sa and mason et al 1991 on the informal risk capital market in the u k what about the informal risk capital market in sweden traditionally the tax system in sweden has not stimulated private wealth accumulation and there has been a tradition to seek formal institutional solutions to solve the problems faced by entrepreneurial ventures however in recent years there has been a growing interest in the potential role of informal investors to fill the equity capital gap for entrepreneurial ventures today there seems to be an informal risk capital market in sweden even if it is not very large in terms of investor demographics investment activity portfolio characteristics and the relationship between the informal investor and the portfolio firm the informal investors in sweden can be characterized in the following way they are predominantly male and they are financially well off one main characteristic is that they are very experienced entrepreneurs and it can be assumed that the majority of the informal investors have made their fortunes through a cash in of their businesses the informal investors in sweden seem to be frequent investors and their acceptance rate is rather high furthermore they seem to be rather careful in their evaluation of new investment opportunities and also invest large amounts of money in their informal investments the informal investors seem to make their investments in established firms and in more low tech industry sectors therefore they only partly seem to play a role infilling the equity capital gap for entrepreneurial ventures the informal investors relationship to their portfolio firms can be characterized as active but they are not involved to any large extent in daily operations the most common way of organizing the relationship is by way of active work on the board and by providing consulting help when needed what are the similarities and differences between informal investors in the u k the u s a and sweden this study shows that there are some similarities for example informal investors are predominantly male with an entrepreneurial background financially well off and they identify investment opportunities from friends and business associates on the other hand there seem to be some important differences for example informal investors in the u k and sweden seem to be older than those in the u s a furthermore informal investors in sweden invest a higher proportion of their wealth in informal investments compared to their counterparts in the u s a and the u k in terms of investment activities informal investors in the u k can be characterized as less sophisticated and ad hoc investors and they seldom make investments with other informal investors on the other hand informal investors in the u s a and sweden seem to be more professional in their investment activities i e they make many serious evaluations of new investment opportunities and they put rather large emphasis on the evaluation in terms of portfolio characteristics informal investors in sweden seem to take the lowest risks in their investment portfolios compared to their counterparts in the u s a and the u k finally informal investors in the u k the u s a and sweden work differently in relationship to their portfolio firms in the u k the relationship can be characterized as passive i e their involvement in the portfolio firms daily operations is usually rather low on the contrary the informal investors in the u s a work very actively in their portfolio firms the analysis shows that there seem to be two extreme categories of informal investors one extreme is represented by many of the informal investors in the u k they can be characterized as infrequent and less sophisticated investors who invest small amounts of money and work as rather passive investors the other extreme is represented by informal investors in the u s a they seem to be more professional and active in their informal investments informal investors in sweden show some similarities with their u s counter parts but they work less actively in the portfolio firms than do informal investors in the u s a the differences between the characteristics of informal investors in the u k the u s a and sweden are of course attributable to differences in contextual factors such as investment climate entrepreneurial traditions fiscal regimes regulatory environment and wealth distribution this implies that it may be difficult to copy measures to stimulate the informal risk capital market from one country to another

the association between venture capitalists selection and value adding behavior evidence from early stage high tech venture capitalists building upon self efficacy and collective effort theories we study the association between the selection behavior of venture capitalists and their involvement in value adding activities we argue that investors who prioritize different characteristics of a business proposal during selection will be more or less confident of their own abilities and the abilities of entrepreneurial teams to effectively add value to portfolio companies and hence will be more or less involved in providing value adding activities in order to test this claim we use a stratified sample comprising 68 european early stage high tech venture capitalists results show that venture capitalists who focus on entrepreneurial team characteristics or financial criteria during selection are less involved in value adding activities compared to their peers who focus on technological criteria we discuss these findings from a theoretical and practical perspective

security analyst superiority relative to univariate time series models in forecasting quarterly earnings abstract this paper provides evidence of security analyst sa superiority relative to univariate time series ts models in predicting firms quarterly earnings numbers and shows that sa forecast superiority in our sample is attributable to 1 better utilization of information existing on the date that ts model forecasts can be initiated a contemporaneous advantage and 2 use of information acquired between the date of initiation of ts model forecasts and the date when sa forecasts are published a timing advantage

financing the small firm this study presents a framework to delineate financing the small firm special consideration is given to small firms unique financing sources such as trade and bank credit entrepreneur s own resources informal investment and venture capital the small firm has limited or no access to many traditional debt and equity markets that supply long term financing to the corporate world and therefore operates in segmented and imperfect financial markets the links between small firms financing opportunities and managerial goals are traced from the start up stage through establishing a mature firm as the small firm matures it operates in a broader financial market this study establishes the foundation for future empirical research

university spin out companies and venture capital abstract the creation of university spin out companies that create wealth is a major policy objective of governments and universities finance is a catalyst of this wealth creation yet access to venture capital is a major impediment faced by these companies in this article we adopt a finance pecking order perspective to examine the problems faced by those university spin out companies seeking to access venture capital we triangulate evidence from spin out companies university technology transfer offices and venture capital firms in the uk and continental europe to identify the problems and to suggest policy developments for these parties as well as government we compare perceptions of high tech venture capital firms that invest in spin outs with those that do not and also consider vcs views on spin outs versus other high tech firms our evidence identifies a mismatch between the demand and supply side of the market in line with the pecking order theory venture capitalists prefer to invest after the seed stage however in contrast to the pecking order theory ttos see venture capital as more important than internal funds early on we develop policy implications for universities technology transfer offices academic entrepreneurs venture capital firms and government and suggest areas for further research

innovation and entrepreneurship schumpeter revisited in a large part of the literature on schumpeter one finds that attention is paid to either his early contributions with reference to the role of the entrepreneur as the personification of innovation or to his later contributions stressing the role of large companies as main drivers of innovation this paper complements some recent contributions to the assessment of the influence of schumpeter on economics and social sciences in general it demonstrates that a careful reading of his writings reveals that there is no simple dichotomy between the old and the young entrepreneurial activities play an active role in understanding the dynamics of innovation throughout schumpeter s theory copyright 1996 by oxford university press

the rewards to meeting or beating earnings expectations abstract this paper finds that firms that meet or beat current analysts earnings expectations mbe enjoy a higher return over the quarter than firms with similar quarterly earnings forecast errors that fail to meet these expectations further such a premium to mbe although somewhat smaller exists in the cases where mbe is likely to have been achieved through earnings or expectations management the findings also indicate that the premium to mbe is a leading indicator of future performance this premium and its predictive ability are only marginally affected by whether the mbe is genuine or the result of earnings or expectations management

anatomy of initial public offerings of common stock initial public offerings of common stocks ipos are typically underpriced in this paper the author develops and tests the hypothesis that underpricing serves as a form of insurance against legal liability and the associated damages to the reputations of investment bankers the empirical results based on samples of ipos that were brought to the market before and after the securities act of 1933 provide considerable support for the implicit insurance hypothesis specifically gross underpricing and market segmentation between prestigious and fringe investment bankers in originating unseasoned new issues appear to be peculiar to the post 1933 era a number of studies have documented that unseasoned common stocks typically garner large positive abnormal returns during a short period following the initial offering in his recent review of the empirical evidence on the initial returns of common stock offerings smith 36 concluded that the returns from offer price to after market price have exceeded fifteen percent his calculations did not include some of the earlier results obtained by mcdonald and fisher 23 and logue 20 when their samples are combined with those in smith s review the initial returns of unseasoned equity offerings appear even larger over seventeen percent these results imply that underwriters consistently offer the securities at substantial discounts from their values that are set in the after market in other words initial public offerings ipos appear to be underpriced what is even more puzzling is the fact that in some time periods underpricing appears to be systematically larger than in other periods ibbotson and jaffe 15 and ritter 29 have documented that during the postwar era there have been a number of periods in which the initial returns of common stocks have been extremely high ritter for example reported that the average return from the offer price to the first after market price was over forty eight percent for ipos in 1980 and 1981 1 similarly the initial returns of unseasoned issues of common stock brought to the market in 1950 1951 1961 and 1968 were unusually large these periods in which ipos were grossly underpriced are referred to as the hotissue markets why do investment bankers underprice ipos why do issuers

what drives micro angel investments despite of the significant role of informal venture capital in the financing of new entrepreneurial ventures there is little research explaining the factors determining the propensity of individuals to make microangel investments building on two theoretical frameworks a social psychological theory of planned behavior and an economic theory on the determinants of demand for risky assets in household portfolios we develop a set of hypotheses predicting the propensity of individuals to make informal investments in new businesses owned by others in our analysis we test whether the determinants of micro angel investments are similar when investing in a business owned by a close family member versus more distant business the hypotheses are tested using data from 6007 interviews of finnish adults carried out in the global entrepreneurship monitor program in 2000 2002 the findings show that the theoretical frameworks have more power in explaining investments in firms not owned by close family members the study provides new understanding of the differences in the drivers of different types of micro angel investments

the red queen in organizational creation and development we synthesize organization learning theory and organizational ecology to predict systematic patterns in the founding and growth of organizations over time our central argument is that competition triggers organizational learning which in turn intensifies competition that again triggers an adaptive response we model this self exciting dynamic sometimes referred to as the red queen in general evolutionary theory to explain organizational founding and growth rates among the thousands of retail banks that have operated in illinois at any time from 1900 1993 we find strong evidence that red queen evolution led some organizations to grow quickly and to place strong competitive pressure on rivals red queen evolution also helped establish barriers to entry however this same evolutionary process appears to make organizations more susceptible to competency traps ultimately slowing their growth rates and inviting new market entry organizations confronted by a widely varying distribution of competitors grow more slowly and are more likely to face new entrants overall the results suggest that processes of organizational creation and growth emerge from ecologies of learning organizations more generally we discuss the use of ecological theory and models to study the empirical consequences of organizational learning opyright 2002 oxford university press

venture capital high technology and regional development florida r l and kenney m 1988 venture capital high technology and regional development reg studies 22 33 48 this paper explores the role of venture capital in technological innovation and regional development both aggregate data and a unique firm level data base are employed to determine the location of major centres of venture capital flows of venture capital investments and patterns of investment syndication or coinvestment among venture capital firms three major centres of venture capital are identified california san francisco silicon valley new york and new england massachusetts connecticut as well as three minor venture capital centres illinois chicago texas and minnesota venture capital firms are found to cluster in areas with high concentrations of financial institutions and those with high concentrations of technology intensive enterprises venture capital firms which are based in financial centres are typically export oriented while those in technology centres tend t

the capital gap for small technology companies public venture capital to the rescue in this paper we analyze effectiveness of public intervention for fostering private venture capital market in spain we use a sample obtained from venturexpert database consisting of 755 investments made by 83 spanish public and private venture capitalists that closed at least one fund between 1997 and 2008 we compare the investments undertaken by private and public investors before and after public venture capital programs were started we found that spanish venture capital market has rapidly developed in the last 10 years and that this development coincides with the establishment of public policies for encouraging technology entrepreneurship we also found that other factors such as previous experience of investors and size have also contributed to fostering more high risk investments these results may encourage governments in other countries to start or keep working to promote private venture capital investments

venture finance small firms and public policy in the uk abstract during the tenure of the current conservative administration public policy in britain has very much favoured the smaller firm this policy emphasis appears to be based on a belief in the superior job creating potential and innovatory capacity of smaller firms over their larger counterparts evidence presented in the paper shows that small firms have indeed made an important contribution to innovation in the uk and that their share of significant british innovations has increased significantly since the mid 1970s an important aspect of small firm policy in the uk has been the introduction of several schemes designed to increase the flow of capital into the small firm sector with special emphasis being placed on venture capital the first of these schemes the loan guarantee scheme has directed capital from the banks into over 14 000 small firms the second scheme the business expansion scheme has increased significantly the overall flow of venture capital and has biased investments towards start up and early stage financing these two schemes together with the establishment of an unlisted securities market have provided some impetus to the development of private sector venture capital in britain which is growing apace essentially the public sector schemes have underwritten the costs of entry to the venture capital market of both individual and institutional investors in other words they have had an important catalytic effect in stimulating the growth of private sector venture capital industry which is now the largest in europe

regional determinants of small firm loans under the u k loan guarantee scheme the loan guarantee scheme was initiated in 1981 in order to alleviate a perceived constraint in the ability of small firms to secure bank finance due to a lack of collateral this paper shows that a national small firms support scheme has at the point of delivery had quite different coverage across regions briefly the initial evidence suggests that the northern regions of england have been the major net beneficiaries of the scheme primarily at the expense of northern ireland and scotland further analysis identified house prices as the single most important determinant of loan size acting via a collateral effect on loan numbers and value fixed regional effects were dominant particularly in the south east and north west

international perspectives on the supply of informal venture capital abstract despite major changes in the number and range of sources of finance for new and small ventures in the united kingdom in recent years there continues to be a shortage of risk capital for ventures actively seeking external equity finance in the united states the informal venture capital market plays a major role in filling this equity gap particularly in the early stages of venture development however there is little comparable information on the size of the informal venture capital pool in the united kingdom or other european economies despite recent recognition that the apparent underdevelopment of this market in the u k represents a major barrier to the development and growth of new ventures this paper therefore presents the first analysis of the informal venture capital market in the u k and compares the characteristics and attitudes of u k informal investors with those in the u s the data reported in this paper have been obtained from a combination of postal survey and snowball sample techniques that generated useable information from 86 informal investors informal investors are playing an important role in venture financing in the u k in three ways they make small scale investments in new and early stage ventures where the equity gap is most significant they are more permissive in their financing decisions than the formal venture capital industry in terms of having lower rejection rates longer exit horizons and lower target rates of return and they invest locally and can thereby close the regional equity gap arising from the overconcentration of venture capital investment in the core south east region in the u k in terms of demographics u k informal investors share many of the characteristics of north american informal investors they are predominantly male with an entrepreneurial background financially well off without being super rich and identify investment opportunities from friends and business associates there are a number of key differences that may be attributable to differences in contextual factors such as personal tax regimes regulatory environments wealth distribution and the structure of the formal venture capital and ipo markets for example u k informal investors are significantly older than those in the u s reflecting the influence of higher u k tax rates on the rate of capital and wealth accumulation more generally in comparison to u s investors u k informal investors have more investment opportunities brought to their attention seriously consider more proposals but invest in no more opportunities operate independently with syndication and joint investment relatively uncommon reducing the average total investment per financing round available to ventures fail to identify entrepreneurs themselves as a primary source of information on investment opportunities have higher rate of return and capital gains expectations are slightly less patient investors and are rather less satisfied with the overall performance of their informal investment portfolios reflecting intercountry and intertemporal variations in investment climate and conditions it appears therefore that the general inefficiency of the informal capital market identified by wetzel 1987 which reflects the invisibility of informal investors the fragmented nature of the market and the imperfect channels of communication between investor and entrepreneur is compounded in the u k case the extent to which this reflects contextual differences on the one hand or simply a slower developmental process in the u k will only be common methodological basis based on the evidence presented in this paper however a key conclusion is that the information networks available to u k informal investors are less effective than those in north america and in particular appear to contain lower quality information and a higher degree of redundant information specific forms of intervention in the market by for example stimulating the flow of information through the promotion of informal investment networking and brokerage services along the lines of u s and canadian examples such as vcn and coin therefore appear defensible

new resources and new ideas private equity for small businesses abstract private equity for rapidly growing small business is raised primarily from the organized venture capital market and the informal market comprised of high net worth individuals or angel investors we discuss commercially and publicly available data on private equity the research findings of studies that use these data and some of the more important questions that the available data have been unable to address

similarities and differences in small and large corporation beliefs about capital structure policy theoretical researchers posit many factors that affect a firm s capital structure decisions theory also suggests that these influences will have different impacts on small and large firms however empiricists face difficulties in testing these hypotheses due to problems of quantifying the motivations expectations and preferences prevalent in the various theories

innovation and regional growth in small high technology firms evidence from britain and the usa oakey r p 1984 innovation and regional growth in small high technology firms evidence from britain and the usa reg studies 18 237 251 this paper examines the varying impact of regional resources on innovation in small high technology firms evidence is drawn from diverse local economies ranging from the development region of scotland through the south east of england to the bay area of california measurement focuses on the key inputs to innovation of research and development and investment capital surprisingly the findings indicate encouraging small firm innovation and growth in scotland an anticipated higher incidence of venture capital funding in the usa is confirmed and quantified with concluding comments on the policy implications resulting from this discrepancy

developing the informal venture capital market a review of the department of trade and industry s informal investment demonstration projects 1 this paper summarizes the key findings from the final review and evaluation of five informal investment demonstra tion projects department of trade and industry crown copyright is reproduced with the permission of thecontroller of hmso

micro equity for sustainable development selection monitoring and exit strategies of micro angels abstract sustainable development requires balancing environmental social and financial concerns this requires investors to select and monitor entrepreneurs who would balance these triple concerns at the same time there has been considerable attention to small is beautiful and micro investors have stepped in to look for such eco entrepreneurs to the classical institutional logic of economic returns they add the logic of social returns as well as the logic of environmental and local safeguards this study looks at investment clubs in france which have been coping with this balance of people planet and profitability for the last three decades we study their preferences in the selection process for investment projects in the entrepreneurs monitoring process as well as their exit strategies using principal components analysis we find that a large number of selection criteria can be regrouped into underlying factors that take into account two out of the three major dimensions of sustainable development at a time we find that four factors lie beneath the criteria used by the micro angels in the monitoring process we have also been able to establish a one to one correspondence between four of the six major exit strategies and four selection factors suggesting a prior relationship between selection process criteria and preferred exit strategies

trade credit and informational asymmetry commonly used trade credit terms implicitly define a high interest rate that operates as an efficient screening device where information about buyer default risk is asymmetrically held by offering trade credit a seller can identify prospective defaults more quickly than if financial institutions were the sole providers of short term financing the information is valuable in cases where the seller has made nonsalvageable investments in buyers since it enables the seller to take actions to protect such investments traditional explanations for the widespread use of trade credit fall into two categories the financing motive holds that capital market imperfections enable sellers to finance buyer purchases at lower cost than financial institutions ferris 4 argues that trade credit provides payment flexibility and thus reduces the overall need for buyers and sellers to maintain precautionary balances emery 3 contends that noncompetitive rents of financial institutions can be circumvented by sellers and buyers through provision of trade credit however the financing motive is not sufficient to explain why small suppliers offer trade credit the wide cross sectional variation in terms or why large buyers often take the prompt payment discount late a second set of explanations is best described as pricing motivations for trade credit provision nadiri 10 argues that availability of alternative payment terms can increase product demand but does not indicate why the offered terms could not be duplicated by financial institutions schwartz and whitcomb 14 argue that trade credit is used to circumvent robinson patman and similar prohibitions on price discrimination the correctness of this position depends on the charge to users of trade credit exceeding the cost of provision by the seller although the explanation is possible in principle an empirical question remains as to why variations in actual credit terms appear to be based on product market rather than buyer characteristics the literature also contains analyses of the impact of changing macroeconomic conditions on trade credit terms and aggregate credit flows schwartz 13 for example employs a financing motive for trade credit to conclude that restrictive monetary policy can be partly mitigated by liberalization of trade credit terms by firms with relatively easy access to capital markets however a microeconomic

population adaptation with newcomers and incumbents the effects of the organizational niche the article integrates three theory fragments of organizational ecology using symbolic logic it takes an earlier model that aligned inertia theory with red queen competition theory as a departure point and extends this model with temporal niche theory effects the conflicting predictions between earlier and new theory phases are reconciled by applying the knowledge updating feature of non monotonic logic the results indicate a rationale for discriminating between qualitative and quantitative aspects of environmental change and also for telling apart ways of organizational adaptation based on effectiveness and efficiency

why has china succeeded and why it will continue to do so the key factor underlying china s fast development during the last 50 years is its ability to master and accumulate new and more complex capabilities reflected in the increase in diversification and sophistication of its export basket this accumulation was policy induced and not the result of the market and began before 1979 during the last 50 years china has acquired revealed comparative advantage in the export of both labour intensive products following its factor abundance and sophisticated products although the latter does not mean that there was leapfrogging china is exceptionally well positioned especially taking into account its income per capita to continue learning and gaining revealed comparative advantage in the export of more sophisticated products given adequate policies carefully thought out and implemented reforms and skilful management of constraints and risks china has the potential to continue thriving this does not mean however that high growth will continue indefinitely

financing high technology startups in belgium an explorative study the results of an explorative study on the financing of 18 high technology belgian startups are reported on a counts basis the most important sources of financing at the startup are the entrepreneurs and the banks but the sources that provide the largest amounts of funds are the venture capital companies and private investors private investors and venture capitalists have a complementary role with the former investing mostly at the startup and the latter financing the early growth the role of the government universities and other companies is limited

are small innovators credit rationed drawing upon a sample of 256 small firms who applied for bank loans the current paper is concerned with the extent to which innovativeness is associated with a lower level of loan application success the paper records the proportion of loan successfully applied for and estimates a series of tobit models utilising a number of proxy measures for innovation in terms of inputs outputs and commercial significance to the firm and incorporating standard controls in general the models suggest as anticipated that the most innovative firms are less successful in loan markets than their less innovative peers though there is some variation by proxy moreover there is tentative evidence that a little innovation may be a good thing

business performance and angels presence a fresh look from france 2008 2011 business angels enjoy a strong reputation for being more efficient than other investors among policy makers practitioners and scholars however due to the limited availability of specific financial data previous research has barely assessed the impact of angels on companies performance this paper seeks to bridge this gap by providing evidence from a unique dataset made up of 432 angel backed french companies which are compared to two control groups one randomly selected and another one consisting of similar enterprises this double comparison process enables us to purge our analysis of structural effect and to demonstrate the importance of the methodology in generating the sample indeed the results we obtain significantly differ depending on the control group our results show that the positive influence of angels depends on the condition of the comparison the set of ba backed companies is more likely to exhibit superior performance when it is compared to a random sample whereas the companies performance is either identical or worse when it is compared to a sample composed of k nearest neighbors in addition using a quantile regression technique makes it possible to differentiate the effect of business angels based on the distribution of the value of the growth rate

the association between trading recommendations and broker analysts earnings forecasts this study examines analyst forecast errors within the context of stock recommendations we predict positive forecast error i e optimism for buy recommendations and negative forecast error i e pessimism for sell recommendations we offer two explanations for this prediction 1 the unconscious tendency to process information in a manner that supports one s goal which we refer to as the objectivity illusion hypothesis and 2 the economic incentive to boost trade which we refer to as the trade boosting hypothesis the pattern of analyst forecast bias we predict i e optimism for buys and pessimism for sells is opposite in direction to that predicted by the management relations hypothesis a commonly cited hypothesis for analyst forecast bias we find broker analyst earnings forecast errors are significantly optimistic for buy recommendations and significantly pessimistic for sell

the informal venture capital market aspects of scale and market efficiency abstract risk capital is a resource essential to the formation and growth of entrepreneurial ventures in a society that is increasingly dependent upon innovation and entrepreneurship for its economic vitality the performance of the venture capital markets is a matter of fundamental concern to entrepreneurs venture investors and to public officials this article deals with the informal venture capital market the market in which entrepreneurs raise equity type financing from private investors business angels the informal venture capital market is virtually invisible and often misunderstood it is composed of a diverse and diffuse population of individuals of means many of whom have created their own successful ventures there are no directories of individual venture investors and no public records of their investment transactions consequently the informal venture capital market poses many unanswered questions the author discusses two aspects of the informal venture capital market questions of scale and market efficiency the discussion draws upon existing research to extract and synthesize data that provide a reasonable basis for inferences about scale and efficiency private venture investors tend to be self made individuals with substantial business and financial experience and with a net worth of 1 million or more the author estimates that the number of private venture investors in the united states is at least 250 000 of whom about 100 000 are active in any given year by providing seed capital for ventures that subsequently raise funds from professional venture investors or in the public equity markets and equity financing for privately held firms that are growing faster than internal cash flow can support private investors fill gaps in the institutional equity markets the author estimates that private investors manage a portfolio of venture investments aggregating in the neighborhood of 50 billion about twice the capital managed by professional venture investors by participating in smaller transactions private investors finance over five times as many entrepreneurs as professional venture investors 20 000 or more firms per year compared to two or three thousand the typical angel backed venture raises about 250 000 from three or more private investors despite the apparent scale of the informal venture capital market the author cites evidence that the market is relatively inefficient it is a market characterized by limited information about investors and investment opportunities furthermore many entrepreneurs and private investors are unfamiliar with the techniques of successful venture financing the author s scale and efficiency inferences coupled with evidence documenting gaps between private and social returns from innovation prompt questions about public as well as private initiatives to enhance the efficiency of the informal venture capital market the article concludes with a discussion of venture capital network inc vcn an experimental effort to enhance the efficiency of the informal venture capital market vcn s procedures and performance are described followed by a discussion of the lessons learned during the first two years of the experiment

the growth and geographical anatomy of venture capitalism in the united kingdom martin r l 1989 the growth and geographical anatomy of venture capitalism in the united kingdom reg studies 23 389 403 the 1980s have seen the emergence and rapid growth of venture capitalism in the uk this paper examines this growth both in terms of the spatial organization of the venture capital industry and the regional distribution of venture capital investment the picture that emerges is of an industry which is over centralized in the london area and which in the course of its recent development has tended to concentrate investment in the already more prosperous southeastern and adjacent parts of the country while local venture capital markets are beginning to become established in northern britain it will be some time before the existing regional imbalance is likely to be redressed martin r l 1989 la croissance et la distribution geographique du capital risque au royaume uni reg studies 23 389 403 les annees 1980 ont temoigne de la naissance et de l essor du capital risque au

the size of the informal venture capital market in the united kingdom despite its undoubted importance to the financing of entrepreneurial ventures there are few reliable measures of the size of the informal venture capital market this paper reviews three methods used to generate such estimates market based approaches firm based approaches and the capture recapture approach and develops an alternative approach that is based on scaling up from the visible segment of this market represented by business angel networks this methodology is applied to provide the first formal estimate of the size of the informal venture capital market in the united kingdom informal venture capital investment is shown to broadly equate to the amount of institutional venture capital provided to start up and early stage ventures reflecting the smaller average size of investments in the informal venture capital market however eight times as many businesses raise finance from business angels than from institutional venture capital funds

angel financing and public policy an overview abstract within the past few years public efforts have sought to encourage individual or angel investors this article provides an overview of the motivations for these efforts it assesses the underlying challenges that the financing of young growth firms pose the ways that specialized financial intermediaries address them and the rationales for public efforts to encourage angel investors the final section raises a set of questions about the practical implementation of these efforts

when bureaucrats meet entrepreneurs the design of effective public venture capital programmes recently public efforts to finance small high technology firms have proliferated we review the motivations for these efforts and make some preliminary observations about their design we explore the underlying challenges that the financing of young growth firms poses the ways that specialised financial intermediaries address them and the rationales for public efforts to finance these companies the final section makes a set of observations about the ways in which the structure of these efforts can most effectively complement private sector activity a frequent fault in programme design is the presumption that technological criteria can be divorced from business considerations when evaluating firms the federal government has played an active role in financing new firms particularly in high technology industries since the soviet union s launch of the sputnik satellite in recent years european and asian nations and many us states have adopted similar initiatives while these programmes precise structures have differed the efforts have been predicated on two shared assumptions i that the private sector provides insufficient capital to new firms and ii that the government either can identify investments which will ultimately yield high social and or private returns or can encourage financial intermediaries to do so in contrast to other government interventions designed to boost economic growth such as privatisation programmes these claims have received little scrutiny by economists the neglect of these questions is unfortunate while the sums of money involved are modest relative to public expenditures on defence procurement or retiree benefits these programmes are very substantial when compared to contemporaneous private investments in new firms government programmes in this arena have been divided between those efforts that directly fund entrepreneurial firms and those that encourage or subsidise the development of outside investors in this paper i will focus on public venture capital initiatives programmes that make equity or equity like investments in young firms or encourage other intermediaries to make such investments in some such programmes such as the advanced technology program and the small business innovation research programmes discussed below the funds are provided as a contract or outright grant while these efforts have proliferated a consensus as to how to structure these programmes remains elusive while the design of regulatory agencies has been extensively studied from a theoretical and empirical perspective little work has

agricultural supply response in the argentinean economy este trabajo tiene como objetivo estimar la forma reducida de una funcion de oferta agropecuaria de la economia argentina en el marco de un modelo de equilibrio general los resultados de la estimacion de la oferta agropecuaria con datos que cubren los anos 1939 1984 muestran que hay una elasticidad precio de oferta de largo plazo de aproximadamente 1 3 que es estadisticamente significativa y que la convergencia al estado estacionario se logra en aproximadamente nueve anos esta estimacion de la elasticidad de oferta agropecuaria es aproximadamente tres veces mas grande que estimaciones previas con modelos de equilibrio parcial

conflict of interest and the credibility of underwriter analyst recommendations brokerage analysts frequently comment on and sometimes recommend companies that their firms have recently taken public we show that stocks that underwriter analysts recommend perform more poorly than buy recommendations by unaffiliated brokers prior to at the time of and subsequent to the recommendation date we conclude that the recommendations by underwriter analysts show significant evidence of bias we show also that the market does not recognize the full extent of this bias the results suggest a potential conflict of interest inherent in the different functions that investment bankers perform

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

how business opportunities constrain young technology based firms from growing into medium sized firms this paper analyses how the novelty of business opportunities at start up constrains young technology based firms from attaining substantial growth and becoming medium sized data from 262 young swedish technologybased firms are used to estimate a logit regression model relating different types of opportunities to the probability of becoming medium sized the results show that firms which seek to exploit opportunities based on new market knowledge are less likely to attain substantial growth than firms that seek to exploit opportunities based on existing market knowledge the former class of firms can nevertheless increase the probability of such growth by actively seeking external financing