Do banks or VCs spur small firm growth?

Rebel Cole, Douglas Cumming and Dan Li

Journal of International Financial Markets, Institutions and Money, 2016, vol. 41, issue C, 60-72

Abstract: It is well accepted that access to entrepreneurial finance encourages entrepreneurship and growth. Empirical studies on topic, however, segregate the effect of entrepreneurial finance on entrepreneurship by the source of capital. In this paper, we compare the effect of two main sources of entrepreneurial finance on small firm formation and growth: banks versus venture capital (VC). Based on U.S. data spanning 1995–2011, and regardless of controls for endogeneity, we find the effect of VC to be both economically and statistically significant in stimulating new firms, new establishments, new employment, and new payroll. We do not find similar evidence for banks.

Keywords: Banks; Venture capital; Growth; Entrepreneurship (search for similar items in EconPapers)
JEL-codes: G21 G24 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (23)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:41:y:2016:i:c:p:60-72

DOI: 10.1016/j.intfin.2015.12.005

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