Financing Decision and Productivity Growth for the Venture Capital Industry in Taiwan

Chih-Nan Chen (), Tai-Hsin Huang () and Chien-Hsiu Lin ()
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Chih-Nan Chen: Department of Economics, National Taipei University, 151, University Rd., San Shia, Taipei, 237, Taiwan
Tai-Hsin Huang: Department of Money and Banking, National Chengchi University, No. 64, Sec. 2, ZhiNan Rd., Wenshan District, Taipei City 11605, Taiwan
Chien-Hsiu Lin: Department of Money and Banking, National Chengchi University, No. 64, Sec. 2, ZhiNan Rd., Wenshan District, Taipei City 11605, Taiwan

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2013, vol. 16, issue 02, 1-19

Abstract: This paper attempts to characterize the production technology of venture capital (VC) firms in Taiwan, whilst taking into account the simultaneity problem that arises from the correlation between inputs and unobserved productivity. The estimates of scale economies from OLS are found to be much higher than those obtained from our preferred approach. The paper also explores how the capital structure of those firms was adjusted to increase their productivity when faced with the institutional change that occurred in the VC markets of Taiwan and what we can learn from this. There is evidence that financing mix was irrelevant to firms' productivity growth when tax incentives were issued by the government to stimulate equity financing, whereas they were able to benefit from increased financial leverage after these tax incentives were discontinued, which suggests that the effect of the policy termination was stronger than its initiation, in terms of productivity. Firms that chose to invest in the internet and bio-related industries emerged as placing higher financing decision importance on productivity growth than those with other investment preferences, thus implying that the financing decision for those firms investing in these sectors is much more critical in determining the growth of the firm.

Keywords: Financing decision; venture capital industry; productivity; simultaneity problem; G32; G24; D24 (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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DOI: 10.1142/S0219091513500148

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