Determinants and effects of Venture Capital and Private Equity ...

sealed, backed firms went through an important period of investments which shrank the index.
As Intangibles shows, the investments pointed towards booth kind of assets.
We tried to untangle the effect on performance of backed firms using such variables as
Sales and Value added per employee. Both have positive signs. The presence of the venture
capitalist or private equity fund seems to be effective in terms of sales during the interim
period. As we have already argued, we find explanation for this owing to the additional
consultancy services provided by the external professional investors. Instead, the Value added
is statistically significant only in the year of the deal. We can try to explain this taking advantage
of the outcome of the variable Employees. In fact, the latter points towards a positive and
significant difference in the first year, while in the subsequent time frame it does not. Hence,
assuming that this can be reflected in its relative proxy for performance, we find a sound
justification for the change in significance, namely the increased number of employees.
Unfortunately, if we assume this relation to be valid, we can not outline any interpretation as
for efficiency.
The block of the three subsequent variables allows us to add some comments on the
question whether the presence of an external financial institution plays also an important role
determining what we called a “certification effect”. A first standpoint is that backed firms get
greater access to credit as shown by the variable Debt, which is positive. This is an important
difference since we saw in the ex‐ante analysis that this was not the case. Moreover, the proxy
we use for cost of debt (Financial expenses), has a significant and negative coefficient, leading
us to argue that with the entrance of a professional investor the firm’s credit standing improves
and the interest rate charged lowers. Finally, Trade credit is negative and significant. As an
explanation of this we can borrow again the theory and evidence brought by Petersen and
Rajan (1997) establishing a negative relation between amount of credit granted and the
exploitation of trade credit as a form of funding.
When looking at larger firms it is possible to draw similar conclusions for most of the
variables. In our view variable Debt has different interpretations which leave some open
questions. When compared to smaller firms we can see that’s not significant in the first period
while it does so in the following period with a smaller magnitude, though. One could argue that
this is a hint for the intervention of the external financer in re‐balancing the financial structure.
At the same time it is possible to state that large firms which successfully dealt with private
equity firms often undertake structured operation such as MBOs or LBOs which always imply a
high usage of leverage, which usually merges into the company balance sheet. Thus, explaining
the positive coefficient. Unfortunately, our database doesn’t provide us with sufficient
information to untangle this issue.
As a final remark the evidence on the ex‐post performance, coupled with the results of the
ex‐ante, that showed a significant correlation between growth and the probability of venture
capital, seems to indicate that the “innovation first hypothesis”, rather than then the “venture
capital first hypothesis” is validated by our data. The funding occurs after a higher than average
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