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Quantitative Finance and Economics

2021, Volume 5, Issue 4: 640-663. doi: 10.3934/QFE.2021029
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Research article

Venture capital backing: financial policies and persistence over time

  • 1.
    Fundacao Getulio Vargas, School of Business at Sao Paulo, FGV-EAESP, Av. Nove de Julho, 2029–Sala 912, São Paulo, SP, 01313-902, Brazil
  • 2.
    Federal Reserve Bank of Cleveland, Research Department, P.O. Box 6387, Cleveland, OH, 44101-1387, United States
  • 3.
    Fundacao Getulio Vargas, School of Economics at Sao Paulo, FGV EESP, Rua Itapeva, 474–Sala 1002, São Paulo, SP, 01313-902, Brazil
  • Received: 13 September 2021 Accepted: 26 November 2021 Published: 29 November 2021

  • JEL Codes: G24, G30, M41

  • The present article seeks to analyze the financial policies of companies backed by Private Equity and Venture Capital funds (PE/VC). Our sample consists of firms completing an initial public offering between January 1991 and December 2000. Our hypotheses relate to the difference between VC and non-VC-backed firms in terms of financial policies and their persistence. We use four measures to evaluate the firms' financial policies: i) Cash holdings; ii) Leverage; iii) dividends out of their earnings; and iv) interest coverage. To test the four hypotheses, we run Pooled OLS regressions. The results suggest that VC-backing firms keep a higher level of cash holdings than non-VC-backed firms. This effect lasts for at least 8 years after the IPO. We show that VC-backed firms are associated with a lower level of leverage over the first 8 years after the IPO. Differently, while interest coverage is lower in the first years after the IPO, results are not persistent, even reverting in later years. Finally, we do not find statistically significant evidence of a difference between VC- and non-VC-backed firms on dividend to earnings ratio. Our results are robust across statistical methods and different methodologies.

    Citation: Antonio Gledson de Carvalho, Pinheiro Roberto, Sampaio Joelson. Venture capital backing: financial policies and persistence over time[J]. Quantitative Finance and Economics, 2021, 5(4): 640-663. doi: 10.3934/QFE.2021029

    Related Papers:

  • The present article seeks to analyze the financial policies of companies backed by Private Equity and Venture Capital funds (PE/VC). Our sample consists of firms completing an initial public offering between January 1991 and December 2000. Our hypotheses relate to the difference between VC and non-VC-backed firms in terms of financial policies and their persistence. We use four measures to evaluate the firms' financial policies: i) Cash holdings; ii) Leverage; iii) dividends out of their earnings; and iv) interest coverage. To test the four hypotheses, we run Pooled OLS regressions. The results suggest that VC-backing firms keep a higher level of cash holdings than non-VC-backed firms. This effect lasts for at least 8 years after the IPO. We show that VC-backed firms are associated with a lower level of leverage over the first 8 years after the IPO. Differently, while interest coverage is lower in the first years after the IPO, results are not persistent, even reverting in later years. Finally, we do not find statistically significant evidence of a difference between VC- and non-VC-backed firms on dividend to earnings ratio. Our results are robust across statistical methods and different methodologies.


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  • © 2021 the Author(s), licensee AIMS Press. This is an open access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0)
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