Reducing Information Frictions in Venture Capital: The Role of New Venture Competitions

Sabrina T. Howell

No 23874, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Venture capital, an important source of financing for potentially high-growth new businesses, is believed to suffer from information frictions. This paper quantifies the magnitude of these frictions among participants in new venture competitions. In a regression discontinuity design with data from 87 competitions, winning a round increases the chances of external financing by about 35 percent. Winning is most impactful for ventures ranked just above the cutoff but that receive no cash prize, and judge ranks strongly predict venture success. The results indicate that information problems in new venture finance are large, and competitions can help resolve them through certification.

JEL-codes: G24 G4 L1 L2 L26 O3 (search for similar items in EconPapers)
Date: 2017-09
New Economics Papers: this item is included in nep-ent
Note: CF IO PR
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Citations: View citations in EconPapers (5)

Published as Sabrina T. Howell, 2019. "Reducing Information Frictions in Venture Capital: The Role of New Venture Competitions," Journal of Financial Economics, .

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