The effect of venture capital backing on innovation in newly public firms

Serdar Aldatmaz and Ugur Celikyurt

Journal of Empirical Finance, 2023, vol. 74, issue C

Abstract: We study the effect of VC-backing on innovation in newly public firms and find that it is negatively related to patents produced and citations received within the initial years following an IPO – our estimates indicate that VC-backed firms produce 13% fewer patents than nonVC-backed firms within the first year post-IPO. Our findings suggest that this adverse effect is a consequence of VCs timing their portfolio companies’ IPOs at the peak of innovation followed by a decline post-IPO. Additionally, VC-backing leads to higher growth in sales and productivity in newly public firms pointing to a shift in VC focus from creating into commercializing innovation post-IPO. We address endogeneity concerns with an instrumental variables approach.

Keywords: Venture capital; Innovation; Patents; Newly public firms; IPOs (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:74:y:2023:i:c:s0927539823001032

DOI: 10.1016/j.jempfin.2023.101436

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