financial contracting theory meets the real world an empirical analysis of venture capital contracts we compare the characteristics of real world financial contracts to their counterparts in financial contracting theory we do so by studying the actual contracts between venture capitalists vcs and entrepreneurs the distinguishing characteristic of vc financings is that they allow vcs to separately allocate cash flow rights board rights voting rights liquidation rights and other control rights we describe and measure these rights we then interpret our results in relation to existing financial contracting theories we also describe the interrelation and the evolution across financing rounds of the different rights query 1 query 2

new venture teams assessment of learning assistance from venture capital firms abstract prior research examining whether venture capital firms vcs add value to the ventures in their portfolios by advising their new venture teams nvts has led to inconclusive results whereas most prior studies have assumed that nvts value vc assistance this study tests for the possibility that they differentially value two different types of vc assistance business management and operational we collected data by surveying 837 firms identified in the venture capital journal that had received financing from venture capital firms only firms that received first round financing were included in our analysis which reduced our sample size to 205 firms our central finding is that systematic differences exist among nvts in their evaluation of learning assistance from vcs even though vcs can chose their own level of involvement with an nvt successfully improving venture performance through nonfinancial assistance at least partially depends upon the extent to which the nvt values vc input our results indicate that nvts with more industry experience and longer team tenure in the current venture are negatively related to both business management advice and operational assistance offered by their vcs however when an nvt has previously worked together and when its primary experience is from another industry it tends to welcome business management advice from its vc one interpretation of this finding is that an advanced level of operational specialization already exists in such a team which reinforces established operating patterns changing established operating patterns could make it more costly to adopt vc input on operational issues however business management advice may be more welcome because the nvt is still learning how to compete in a new industry these findings add to the growing literature that suggests that vcs play a particularly important role in entrepreneurial ventures when they pursue the development of new technologies ehrlich et al 1994 sapienza 1992 however business management advice is not highly valued by nvts that pursue more technical innovations these findings in combination with those of sapienza and amason 1993 suggest that conflict in the vc nvt relationship may be the greatest when the parties attempt to resolve critical differences which ironically appear to be the ones where the nvt could derive the greatest benefit from listening to its vc finally current firm performance is not related to the nvt s evaluation of vc assistance although cross sectional measures of performance have obvious limitations particularly with new ventures these results indicate that the nvt evaluation of vc assistance is not driven by short term performance past research has shown that vcs vary widely in their preferred level of involvement with the managers of firms in their portfolio some vcs prefer a laissez faire approach whereas others think that they must be more involved if they are to ultimately receive high rewards the central finding from this study is that significant differences exist among nvts in their evaluation of business management and operational assistance for vcs that are more involved these findings suggest that the optimal level of involvement is also partially contingent upon the nvts openness to learning ignoring the contingent nature of the vc nvt relationship vcs could reduce their influence as a tool to improve firm performance and to ensure the ultimate survival of the venture

what do entrepreneurs pay for venture capital affiliation this study empirically evaluates the certification and value added roles of reputable venture capitalists vcs using a novel sample of entrepreneurial start ups with multiple financing offers i analyze financing offers made by competing vcs at the first professional round of start up funding holding characteristics of the start up fixed offers made by vcs with a high reputation are three times more likely to be accepted and high reputation vcs acquire start up equity at a 10 14 discount the evidence suggests that vcs extra financial value may be more distinctive than their functionally equivalent financial capital these extra financial services can have financial consequences a central issue for early stage high tech entrepreneurs is obtaining external resources when the assets of their start up are intangible and knowledge based particularly for entrepreneurs without an established reputation convincing external resource providers such as venture capitalists vcs to provide financial capital may be challenging the literature contains two main lines of research for overcoming this problem one research stream has concentrated on designing institutional structures to permit financing early stage ventures this contractual and monitoring based approach is aimed at solving potential agency problems between investors and entrepreneurs e g admati and pfleiderer 1994 lerner 1995 hellmann 1998 and kaplan and str omberg 2001 2002 2003 a second research stream has suggested that when the quality of a start up cannot be directly observed external actors rely on the quality of the start up s affiliates as a signal of the start up s own quality

public subsidies and the employment growth of high tech start ups assessing the impact of selective and automatic support schemes the aim of this article is to assess the impact of public subsidies on the employment growth of new technology based firms ntbfs contingent on i the type of policy scheme either selective or automatic and ii the age of the firms at the time of receipt of the subsidy for this purpose we analyze a sample composed of 536 italian independent ntbfs observed during a 10 year period 1994 2003 we estimate augmented gibrat law type dynamic panel data models using different techniques aimed at controlling for the potentially endogenous nature of public financing namely the generalized method of moments system fixed effect instrumental variable and inverse probability treatment weights estimators the results of the estimates show that selective support schemes had a larger impact on employment growth than automatic ones but only if they were awarded in the very early period of the recipient firms lives however selective subsidies awarded to young ntbfs are rare in italy calling into question the capability of the italian industrial policy to sustain the growth of the high tech entrepreneurial sector

the economics of small business finance the roles of private equity and debt markets in the financial growth cycle abstract this article examines the economics of financing small business in private equity and debt markets firms are viewed through a financial growth cycle paradigm in which different capital structures are optimal at different points in the cycle we show the sources of small business finance and how capital structure varies with firm size and age the interconnectedness of small firm finance is discussed along with the impact of the macroeconomic environment we also analyze a number of research and policy issues review the literature and suggest topics for future research

the early exercise of options on treasury bond futures this paper presents a test of the theory of rational option exercise exercise data from the market for options on treasury bond futures are used to test the model of rational early exercise developed by barone adesi and whaley 1987 baw the results show that the baw model underestimates the futures price that will trigger exercise for calls and overestimates this price for puts the exercise bias is observed to change across option maturities and the direction of the bias is consistent with the direction of the model pricing bias observed by whaley 1986

reassessing the relationships between private equity investors and their portfolio companies the scope and purpose of this special issue is to reassess the relationships between private equity pe investors and their portfolio companies in the light of the need for venture capital private equity vc pe firms to adapt their strategies for value creation in the light of the recent financial crisis we particularly focus upon vc pe characteristics that differently contribute to portfolio firm performance the papers presented in this special issue capture this aim in various ways reflecting the heterogeneity of vc pe investors and the firms in which they invest we begin this introductory paper by providing a brief overview of each paper s contribution we articulate themes for an agenda for future research relating to the heterogeneity of investor types and the contexts in which they invest

the american put option valued analytically an analytic solution to the american put problem is derived herein the hedge ratio and other derivatives of the solution are presented the formula derived implies an exact duplicating portfolio for the american put consisting of discount bonds and stock sold short the formula is extended to consider put options on stocks paying cash dividends a polynomial expression is developed for evaluating these formulae values and hedge ratios for puts on both dividend and nondividend paying stocks are calculated tabulated and compared with values derived by numerical integration and binomial approximation as with european options evaluating an analytic formula is more efficient than approximating the stock price process or the partial differential equation by binomial or finite difference methods finally applications of this american put solution are discussed

profit distribution and compensation structures in publicly and privately funded hybrid venture capital funds abstract policy makers have become increasingly concerned at the lack of risk capital available to new and early stage entrepreneurial ventures as a public response to a perceived market failure several governments have set up programs to channel equity finance to capital constrained but high potential young enterprises critically government support is often directed through the agency of private venture capital funds we examine the profit distribution and compensation structures used in these hybrid public private funds we appraise government policy makers ability to use these structures to improve the expected returns in market failure areas in order to attract private sector investors and professional managers to participate in these funds the results derived from our simulation study suggest that such asymmetric profit sharing models can only resolve relatively modest market failures unless the programs also manage to attract highly competent investors who are able to produce above average gross returns in market failure areas

adjustment costs durables and aggregate consumption abstract previous tests of the permanent income hypothesis pih have focused on either non durables or durables expenditures in isolation this paper studies consumer purchases of non durables and durables as the outcome of a single optimization problem it is shown that with non separability in utility the presence of adjustment costs of changing durables stocks may affect the time series properties of both components of expenditure an econometric test of the pih based on the model developed in the paper is both more efficient and less prone to bias than those in some previous studies however this test confirms earlier rejections of the pih in aggregate quarterly data

the effect of trade secret legal protection on venture capital investments evidence from the inevitable disclosure doctrine abstract this study investigates how the inevitable disclosure doctrine a form of trade secret legal protection affects venture capital vc investment using a data set of vc deals realized in the united states from 1980 to 2012 we find that a rule in favor of inevitable disclosure increases the amount of vc investment we address mechanisms that can explain these findings by assessing how the inevitable disclosure doctrine a displays a different impact on vc investments according to the characteristics of the state and the industry where the start ups operate and b affects the performance of vc backed firms we also discuss managerial and policy implications of our findings

the value of shorting abstract this paper assesses the effects of short sale constraints on asset prices the analysis focuses on a particular period in sweden during which shorting stocks was impossible but stock options were traded firstly the effect on both stock options and the underlying stock was investigated jointly by considering deviations from put call parity secondly the effects on only the derivatives were investigated by considering their implied volatilites the main findings are i the impact on pricing are consistent with a short sale constraint ii these effects are much more pronounced when shorting is not possible iii these effects are not solely attributable to the mispricing of the stock as previous research indicates and iv access to international shorting markets can alleviate local short sale constraints

the participation of new technology based firms in eu funded r d partnerships the role of venture capital this paper investigates the participation of new technology based firms ntbfs in eu funded r d partnerships we examine whether venture capital vc backed firms are more likely to enter these partnerships than their non vc backed peers and the role of the ownership and governance of the vc investor we resort to a mixed method approach we use qualitative information collected through interviews with managers of ntbfs and vc firms to better illustrate our deductively derived theoretical hypotheses that are then tested through a large scale econometric analysis the econometric analysis takes advantage of the vico dataset which includes longitudinal data on 8346 ntbfs from seven european countries observed from 1995 to 2008 out of which 758 were vc backed the econometric results show that vc backing has a strong positive impact on ntbfs participation in eu funded r d partnerships but the magnitude of this effect rapidly decreases with ntbfs prior experience of this type of partnership moreover the magnitude of the impact of vc backing considerably differs depending on the type of investor with bank and government vc exhibiting the strongest positive effects

interorganizational alliances and the performance of firms a study of growth and innovation rates in a high technology industry this paper investigates the relationship between intercorporate technology alliances and firm performance it argues that alliances are access relationships and therefore that the advantages which a focal firm derives from a portfolio of strategic coalitions depend upon the resource profiles of its alliance partners in particular large firms and those that possess leading edge technological resources are posited to be the most valuable associates the paper also argues that alliances are both pathways for the exchange of resources and signals that convey social status and recognition particularly when one of the firms in an alliance is a young or small organization or more generally an organization of equivocal quality alliances can act as endorsements they build public confidence in the value of an organization s products and services and thereby facilitate the firm s efforts to attract customers and other corporate partners the findings from models of sales growth and innovation rates in a large sample of semiconductor producers confirm that organizations with large and innovative alliance partners perform better than otherwise comparable firms that lack such partners consistent with the status transfer arguments the findings also demonstrate that young and small firms benefit more from large and innovative strategic alliance partners than do old and large organizations copyright 2000 john wiley sons ltd

relative prices complementarities and comovement among components of aggregate expenditures abstract recent work suggests that the standard real business cycle framework has difficulty accounting for co movement among aggregate expenditure components when they are disaggregated even slightly to include business and household investment in addition relative prices of these goods have displayed substantial variation over the post war period this paper reports that incorporating a source of empirically plausible relative price variability makes the framework s implications for comovement even worse compounding the comovement problem the possibility that complementarities in the production of household and business capital may help account for observed co movement is considered the results suggest that complementarities improved the framework s empirical performance

the use of the control variate technique in option pricing this paper presents a generalized version of the lattice approach to pricing options it shows how the control variate technique can produce significant improvements in the effi ciency ofthe approach the control variate technique is illustrated using american puts on dividend and nondividend paying stocks

current real business cycle theories and aggregate labor market fluctuations hours worked and the return to working are weakly correlated traditionally the ability to account for this fact has been a litmus test for macroeconomic models existing real business cycle models fail this test dramatically we modify prototypical real business cycle models by allowing government consumption shocks to influence labor market dynamics this modification can in principle bring the models into closer conformity with the data our empirical results indicate that it does

implied interest rates one of the most important assumptions in financial economics models is the existence of a risk free rate available for borrowing and lending in any economy however the borrowing rate does not coincide with the lending rate even for the short run the difference between the rates is considered a compensation for intermediation that is necessary in the imperfect real world in a well functioning financial market this difference would be small and the smaller it is the better off is the economy the two short term rates that best approximate riskless lending and borrowing rates are the treasury bill rate and the brokers loan call rate respectively with the introduction of put and call options a new risk free instrument has been created using options alone or options combined with the underlying asset one could turn to these markets for his borrowing or lending needs thereby with the introduction of put and call options a new risk free asset has been created the objective of this study is to estimate the rate implied in option prices and compare it to other riskless instruments we have used transactions data on chicago board options exchange options taking into account the american feature of these options we find that options markets provide rates that are competitive with other short term rates these rates are closer to the borrowing rate than to the lending rate

venture capitalists and cooperative start up commercialization strategy this paper examines the possible impact of venture capital vc backing on the commercialization direction of technology based start ups by asking to what extent if at all do vc funded start ups engage in cooperative commercialization strategies strategic alliances or technology licensing or both relative to a comparable set of start ups and with what consequences to address these questions i assemble a novel data set that matches firms receiving a federal research and development subsidy through the u s small business innovative research program to vc funded firms by observable characteristics in five technology intensive industries these data allow decoupling of cooperative activity resulting from start up development via the passage of calendar time from that due to association with vcs an analysis of the 696 start ups in the sample split by an external funding source suggests substantial boosts in both cooperative activity associated with vc backed firms and in the likelihood of an initial public offering

on growth drivers of high tech start ups exploring the role of founders human capital and venture capital abstract in this paper we jointly analyze the effects of the human capital of founders and access to venture capital vc financing on the growth of 439 italian new technology based firms ntbfs we rely on econometric models that control for survivorship bias and the endogeneity of vc financing as to non vc backed firms the competence based argument that the capabilities of ntbfs coincide with founders skills is confirmed nonetheless once a ntbf obtains vc this coincidence vanishes pointing to the coach function performed by vc investors conversely the view that sees the scout function as the main task performed by vc investors is not supported

new technology based firms in europe market penetration public venture capital and timing of investment we investigate the effect of public puvc and private prvc venture capital funds on the sales growth of 6513 european new technology based firms ntbfs during the period from 1992 to 2009 our results show that puvc backed ntbfs underperform with respect to prvc backed ones and do not grow more than non venture capital backed companies the impact of puvc is still not statistically significant even though it is positive when puvc funds target young ntbfs the only notable exception suggesting a positive and statistically significant impact for puvcs is when puvc funds cofinance with prvc funds and both target young firms

public versus private venture capital seeding or crowding out a pan european analysis abstract this paper analyzes the relationship between public and private sources of venture capital in europe and the development of the industry controlling for characteristics of the legal systems in 15 european countries over the period 1990 1996 large public participation is correlated with smaller vc industries but analyses do not support the view that public venture capitalists are acting to seed the industry or that are they crowd out private funds on the contrary public involvement seems to cause greater amounts of money to be invested in the industry as a whole we argue that the effects of public intervention whatever the motives are real and probably result from demonstrating sanctioning the social merit of venture capital and from signaling an enduring commitment to it

venture capital in europe and the financing of innovative companies european venture captial venture capital is considered to be the most appropriate form of financing for innovative firms in high tech sectors venture capital has greatly developed over the last three decades in the united states but much less so in europe where policy makers are striving to help channel more funds into this form of financial intermediation in this paper we provide the first assessment of venture capital in europe we document its development in the 1990s and compare it with that of american venture capital we find the wedge between them to be large and growing we then look at the involvement of venture capital with some of europe s most innovative and successful companies those listed on europe s new stock markets venture capital is effective in helping these firms overcome credit constraints and thus to be born in the first place using a unique hand collected data set from the listing prospectuses and annual reports of these companies we find european venture capital to have a limited effect on their ability to raise equity capital grow and create jobs we conclude that public support of the european venture capital industry should look at both its growth and at its maturation laura bottazzi and marco da rin

stochastic trends and economic fluctuations are business cycles mainly the result of permanent shocks to productivity this paper uses a long run restriction implied by a large class of real business cycle models identifying permanent productivity shocks as shocks to the common stochastic trend in output consumption and investment to provide new evidence on this question econometric tests indicate that this common stochastic trend cointegration implication is consistent with postwar u s data however in systems with nominal variables the estimates of this common stochastic trend indicate that permanent productivity shocks typically explain less than half of the business cycle variability in output consumption and investment copyright 1991 by american economic association

indivisible labor and the business cycle abstract a growth model with shocks to technology is studied labor is indivisible so all variability in hours worked is due to fluctuations in the number employed we find that unlike previous equilibrium models of the business cycle this economy displays large fluctuations in hours worked and relatively small fluctuations in productivity this finding is independent of individuals willingness to substitute leisure across time this and other findings are the result of studying and comparing summary statistics describing this economy an economy with divisible labor and post war u s time series

nonparametric estimation of american options exercise boundaries and call prices abstract unlike european type derivative securities there are no simple analytic valuation formulas for finite lived american options even when the underlying asset price has constant volatility the early exercise feature considerably complicates the valuation of american contracts the strategy taken in this paper is to rely on nonparametric statistical methods using market data to estimate the call prices and the exercise boundaries a comparison is made with parametric constant volatility model based prices and exercise boundaries the paper focuses on assessing the adequacy of conventional formulas by comparing them to nonparametric estimates we use daily market option prices and exercise data on the s p100 contract the most actively traded american option contract we find large discrepancies between the parametric and nonparametric call prices and exercise boundaries we also find remarkable similarities of the nonparametric estimates before and after the crash of october 1987

comparative performance of the black scholes and roll geske whaley option pricing models the original black scholes bs 2 european call option pricing model does not take account of divided payments on the underlying stock and does not allow for the possibility of early exercise that may be optimal when the stock pays dividends black 1 has suggested that the original bs model can be modified to take account of dividends and sharpe 14 predicts that this modified or pseudo american bs approach while not exact is probably sufficient for many listed options

when can changes in expectations cause business cycle fluctuations in neo classical settings abstract it is often argued that changes in expectation are an important driving force of the business cycle however it is well known that changes in expectations cannot generate positive co movement between consumption investment and employment in the most standard neo classical business cycle models this gives rise to the question of whether changes in expectation can cause business cycle fluctuations in any neo classical setting or whether such a phenomenon is inherently related to market imperfections this paper offers a systematic exploration of this issue our finding is that expectation driven business cycle fluctuations can arise in neo classical models when one allows for a sufficiently rich description of the production technology however such a structure is rarely allowed or explored in macro models in particular we identify a multi sector setting and a setting with a costly distribution system in which expectation driven business cycles can arise

an analytic approximation for the american put price black and scholes 1 derived the pricing equation for a european put when the stock price follows geometric brownian motion for this same case merton 5 derived the pricing equation for an american put with infinite time to maturity brennan and schwartz 2 rubinstein and cox 7 and parkinson 6 have developed numerical solutions for the price of an american put numerical solutions are expensive and do not provide much intuition naturally an analytic solution would be much preferred unfortunately pricing the american put requires solving a formidable and presumably intractable boundary value problem

capital market imperfections high tech investment and new equity financing highly variable returns asymmetric information and a lack of collateral should cause small high tech firms to have poor access to debt new equity financing has several advantages over debt but may be costly compared to internal finance we examine an unbalanced panel of over 2 400 publicly traded us high tech companies over the period 1981 98 most small high tech firms obtain little debt financing new equity financing in the form of the initial public offering is very important and permits a major increase in firm size after going public comparatively few firms make heavy use of external finacing

relationship lending and sme financing in the continental european bank based system this paper analyzes the relationship between banks and smes in the continental european bank based system we find that smes with longer bank relationships have enhanced access to loans but at the same time they bear a higher cost for their debt we also find that firms maintaining two bank relationships get the cheapest debt which establishes a limit for the degree of concentration of bank relationships our results also show that the existence of trust between firm and bank improves access to financing and reduces the borrowing costs whereas it increases the likelihood that guarantees will have to be provided as a consequence it seems that a relationship based on trust is a better strategy to improve smes access to finance than the establishment of longer or more concentrated relationships

investment shocks and business cycles abstract the origins of business cycles are still controversial among macroeconomists this paper contributes to this debate by studying the driving forces of fluctuations in an estimated new neoclassical synthesis model of the u s economy in this model most of the variability of output and hours at business cycle frequencies is due to shocks to the marginal efficiency of investment imperfect competition and to a lesser extent technological frictions are the key to their transmission although labor supply shocks explain a large fraction of the fluctuations in hours at very low frequencies they are irrelevant over the business cycle this finding is important because the microfoundations of these disturbances are widely regarded as unappealing

corporate bond price data sources and return risk measurement to date a number of studies involving the use of bond prices and or returns have utilized the published prices of trades on the new york and other exchanges these exchange quotes reflect the odd lot activities of individual investors and account for only a negligible portion of the trading in listed issues in contrast the vast majority of listed corporate trading occurs over the counter and involves round lot trades between institutions given differences in market characteristics odd lot exchange prices may differ substantially from those in the round lot institutional market this study compares exchange quotations from moody s bond record with prices assigned by merrill lynch s institutional pricing service and uses each set of prices to calculate return and risk measures institutional merrill lynch bond prices are shown to be systematically greater than exchange moody s prices in addition bond returns based on merrill lynch prices are shown to yield significantly higher beta and r 2 estimates as well as significantly lower standard deviation and residual risk estimates

financing and advising optimal financial contracts with venture capitalists this paper analyses the joint provision of effort by an entrepreneur and by an advisor to improve the productivity of an investment project without moral hazard it is optimal that both exert effort with moral hazard if the entrepreneur s effort is more efficient less costly than the advisor s effort the latter is not hired if she does not provide funds outside financing arises endogenously this explains why investors like venture capitalists are value enhancing the level of outside financing determines whether common stocks or convertible bonds should be issued in response to incentives

the value of early exercise in option prices an empirical investigation previous studies in the valuation of american options apparently undervalue the right of early exercise this study uses actual prices from the cboe s s p 100 option instead of model generated values deviations from the theoretical put call parity relationship are caused by the possibility of early exercise these deviations are used to infer the value of early exercise the actual value of early exercise is both statistically and economically significant as expected from theoretical considerations the value of early exercise for put options is greater than for call options

models and their uses it is argued that economists ought to recognize that modeling in different styles will be appropriate for different purposes or different stages in the development of an area of economics as an example the paper displays simulations of a stochastic general equilibrium model which shed light on the interpretation of widely discussed small macroeconomic vector autoregressive models connecting monetary variables to output and prices this abstract was borrowed from another version of this item

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

option pricing when the variance is changing the monte carlo method is used to solve for the price of a call when the variance is changing stochastically

why do venture capital firms exist theory and canadian evidence executive summary this paper investigates the role of venture capitalists we view their raison d etre as their ability to reduce the cost of informational asymmetries our theoretical framework focuses on two major forms of asymmetric informa tion hidden information leading to adverse selection and hidden ac tion leading to moral hazard our theoretical analysis suggests four em pirical predictions 1 venture capitalists operate in environments where their relative efficiency in selecting and monitoring investments gives them a comparative advantage over other investors this suggests strong industry effects in venture capital investments venture capitalists should be prominent in industries where infor mational concerns are important such as biotechnology computer software etc rather than in rou tine start ups such as restaurants retail outlets etc the latter are risky in that returns show high variance but they are relatively easy to monitor by conventional financial intermediaries 2 within the class of projects where venture capitalists have an advantage they will still prefer projects where monitoring and selection costs are relatively low or where the costs of informational asymmetry are less severe thus within a given industry where venture capitalists would be expected to focus we would also expect venture capitalists to favor firms with some track records over pure start ups

an analytic approximation for the american put price for options on stocks with dividends in a recent paper johnson 7 has given an analytic approximation to the american put price that delivers values that are very close to numerical solutions the limitation to the johnson approximation is that it is only applicable to put options on stocks without cash dividends this study modifies the johnson approximation to value options on stocks that have one exdividend date prior to the option expiration date and these approximation values are compared to the analytic solutions provided by the geske and johnson 6 american put option pricing model the approximation values are generally very close to the analytic solutions

housing and the business cycle revisited abstract i present a multisectoral dsge model with housing real frictions and variable capital utilization that generates aggregate and sectoral co movements due to uncorrelated sector specific shocks major advances are the robust positive correlations of residential investment with house prices and business investment in addition business investment is lagging other economic activities the key improvements are adjustment costs to business investment i identify the parameters of the exogenous shock processes business adjustment costs and variable capital utilization with bayesian estimation the results confirm those obtained from earlier work in this field

the rationality of early exercise decisions evidence from the s p 100 index options market this study provides a comprehensive empirical analysis of the early exercise bistoty of sp but we show that a substantal number of these decisions are clearly irratonal since it would bave been possible to realize a larger riskless net cash jlow by seuling unlike p us studies of early exercise our tests of efflciency and the rationat decions tbatpresumably lead to eficient markets are model independet we also provide evidence concerning the relatve significance of dividends and the wild card to index optonpricing models and introduce and document the importance of the opton to exercise and avoid the indirect costs oftbe spread we alsofind evidence of a significant day of tbe week exercise effect and present some likely explanations for that effect

does governmental venture capital spur invention and innovation evidence from young european biotech companies this paper explores whether and how governmental venture capital investors gvcs spur invention and innovation in young biotech companies in europe to gauge invention we focus on the simple patent stock at the company level while innovation is proxied by the citation weighted patent stock our findings indicate that gvcs as stand alone investors have no impact on invention and innovation however gvcs boost the impact of independent venture capital investors ivcs on both invention and innovation we conclude that gvcs are an ineffective substitute but an effective complement of ivcs we also distinguish between technology oriented gvcs tvcs and development oriented gvcs dvcs we find that dvcs are better at increasing firm s inventions and that tvcs combined with ivcs support innovations

a family production overlapping generations economy abstract this paper provides a theoretical analysis of an overlapping generations economy in which production decisions and input output allocations are all carried out at the family level i consider a single class of output allocation schemes and various degrees of knowledge about the production technology under complete knowledge i show that a family organizational structure in which everyone receives his marginal contribution to output invests less in physical capital than under a perfectly competitive equilibrium environment under incomplete knowledge i analyze and compare how beliefs about the input output relationship affect the physical capital accumulation dynamics and the long run standards of living

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

an empirical examination of the pricing of american put options this study is an ex post performance test comparing the accuracy of an american model to a european model for valuing listed options specifically the geske and johnson american put valuation model is compared with the black and scholes european put model on average both models undervalue relative to market prices put options however the geske and johnson model values are significantly closer to market prices than are the black and scholes values

in search of complementary assets the determinants of alliance formation of high tech start ups abstract why do new technology based firms ntbfs cooperate starting from teece s teece d j 1986 profiting from technological innovation implications for integration collaboration licensing and public policy research policy 15 285 305 conceptual framework and taking advantage of subsequent literature on alliance formation in the resource and competence based tradition and in the social structure perspective we derive an empirical model that aims at highlighting the inducements and obstacles that these firms face in alliance formation according to firm specific characteristics and the nature of the alliance in particular a distinction is made between exploitative commercial alliances and explorative technological alliances the econometric estimates based on a large sample of italian young high tech firms that are observed from 1994 to 2003 provide strong evidence supporting two key intuitions of teece s work first the combination of specialized complementary assets appears to be a key driver of the formation of exploitative commercial alliances by ntbfs more specifically patent holding affects positively the likelihood to establish commercial alliances but this propensity is found to rapidly decrease with firm size suggesting that as long as ntbfs become larger and possess specialized commercial assets their urge for commercial alliances diminishes second following the parallelism set forth by teece between search for alliance partners and access to external financing the analysis indicates that potentially beneficial alliances may not take place because of the high transaction costs faced by smaller ntbfs in this respect our results clearly support the view that sponsor institutions as public research organizations venture and corporate venture capitalists may sensibly reduce these costs and that their role crucially depends on both the identity of the sponsor and the type of alliance

home production meets time to build an innovation in this paper is to introduce a time to build technology for the production of market capital into a model with home production our main finding is that the two anomalies that have plagued all household production models the positive correlation between business and household investment and household investment s leading business investment over the business cycle are resolved when time to build is added

index options the early evidence index options became the most important traded contracts during their first year of existence two contracts namely those on the s p100 and the major markets index have a trading volume which typically surpasses the trading volume in all individual stock option contracts in this paper we examine the pricing of the options on the s p100 and the major markets index using intra day prices we find the options frequently violate the arbitrage boundary put call parity and are substantially mispriced relative to theoretical values our results suggest that tests of option pricing models may be more difficult than previously realized due to nonsynchronous prices even using real time data from the exchanges

on valuing american call options with the black scholes european formula empirical papers on option pricing have uncovered systematic differences between market prices and values produced by the black scholes european formula such biases have been found related to the exercise price the time to maturity and the variance we argue here that the american option variant of the black scholes formula has the potential to explain the first two biases and may partly explain the third it can also be used to understand the empirical finding that the striking price bias reverses itself in different sample periods the expected form of the striking price bias is explained in detail and is shown to be closely related to past empirical findings the black scholes european option pricing model tends to exhibit systematic empirical biases when used to value american call options the reported biases

financing technology based small firms in europe what do we know this paper reviews the evidence on financing technology based small firms tbsfs in europe european tbsfs finance new investments by relying primarily on internal funds due to capital market failures induced by asymmetric information european venture capital has caught up with us venture capital but this is mainly because of the growth in uk venture investments it is unclear whether european venture capital has been able to certify the quality and enhance the growth of funded companies compared with the nasdaq there is little development of trading in high tech stocks in europe the so called new markets established in the 1990s collapsed in the wake of the internet bubble crash public venture capital and research and development r d tax incentives seem to have positively affected high tech firms

does the alternative investment market nurture firm growth a comparison between listed and private companies the creation of stock market segments with low admission requirements was welcomed in the 1990s as an essential move to release small and medium sized enterprises from their dependency on banks for external funding thereby removing the financial barriers that hinder their growth and competitiveness but does easier access to public equity really translate into superior real performance we explore this issue by focusing on the alternative investment market aim a junior segment of the london stock exchange that has experienced long lasting growth in capitalization

venture capitalist certification in initial public offerings this paper provides support for the certification role of venture capitalists in initial public offerings consistent with the certification hypothesis a comparison of venture capital backed ipos with a control sample of nonventure capital backed ipos from 1983 through 1987 matched as closely as possible by industry and offering size indicates that venture capital backing results in significantly lower initial returns and gross spreads in effect the presence of venture capitalists in the issuing firms serves to lower the total costs of going public and to maximize the net proceeds to the offering firm in addition we document that venture capitalists retain a significant portion of their holdings in the firm after the ipo the ability of third party specialists to certify the value of securities issued by relatively unknown firms in capital markets that are characterized by asymmetric information between corporate insiders and public investors has attracted much academic interest in recent years several authors including james 1990 blackwell marr and spivey 1990 and barry muscarella peavy and vetsuypens 1991 have developed and tested models based at least in part on the formal certification hypothesis presented in booth and smith 1986 a related body of work represented by deangelo 1981 beatty and ritter 1986 titman and trueman 1986 johnson and miller 1988 carter 1990 simon 1990 and carter and manaster 1990 has examined how investment bankers and auditors help resolve the asymmetric information inherent in the initial public offering ipo process in this paper we examine whether the presence of venture capitalists as investors in a firm going public can certify that the offering price of the issue reflects all available and relevant inside information we hypothesize that venture capitalists can perform this function that it will be an economically

the dynamic effects of neutral and investment specific technology shocks the neoclassical growth model is used to identify the short run effects of neutral technology shocks which affect the production of all goods homogeneously and investment specific shocks which affect only investment goods the real equipment price crucial for identifying the investment shocks experiences an abrupt increase in its average rate of decline in 1982 so the analysis is based on a split sample on the basis of the preferred specification the two technology shocks account for 73 percent of hours and 44 percent of output s business cycle variation before 1982 and 38 percent and 80 percent afterward the shocks also account for more than 40 percent of hours and 58 percent of output s forecast errors over a three to eight year horizon in both samples the majority of these effects are driven by the investment shocks

on the stability of the two sector neoclassical growth model with externalities we study a class of two sector growth models with sector specific externalities in which one sector produces consumption and the other sector produces investment the novelty is that investment allocated to the consumption sector is an imperfect substitute for investment allocated to the investment sector we show analytically that in this case local indeterminacy near the steady state is impossible for every empirically plausible specification of the model parameters more specifically we show that a necessary condition for local indeterminacy is an upward sloping aggregate labor demand curve in the investment sector which requires a counterfactual strength of the externality we show numerically that an elasticity of substitution of plausible size implies determinacy near the steady state these findings differ sharply from the standard result for two sector models that if the investments allocated to the two sectors are perfect substitutes then local indeterminacy occurs for a wide range of plausible parameter values

valuation of american call options on dividend paying stocks empirical tests abstract this paper examines the pricing performance of the valuation equation for american call options on stocks with known dividends and compares it with two suggested approximation methods the approximation obtained by substituting the stock price net of the present value of the escrowed dividends into the black scholes model is shown to induce spurious correlation between prediction error and 1 the standard deviation of stock return 2 the degree to which the option is in the money or out of the money 3 the probability of early exercise 4 the time to expiration of the option and 5 the dividend yield of the stock a new method of examining option market efficiency is developed and tested