A Theory of Gazelle Growth: Competition, Venture Capital Finance and Policy

Lars Persson and Mehmet Caglar Kaya

No 1291, Working Paper Series from Research Institute of Industrial Economics

Abstract: This paper proposes a theory of gazelle growth in which gazelles can either grow organically or by acquisitions. In the model, there are three types of firms: incumbent, target, and gazelle. We show that the lower cost of organic growth can increase the incentives for acquisition growth. The reason for this is that the incumbent understands that if it acquires the target firm, the gazelle will then invest organically anyway to grow, and therefore, the acquisition will not be sufficient to protect the incumbent's market power. The gazelle could then acquire the target firm at a good price. We also show that financial support for the organic growth of gazelles can increase gazelles' growth by acquisitions since incumbents' preemptive motives are reduced.

Keywords: Gazelles; Acquisitions; Organic growth; Entrepreneurial policy; Venture capital; Financial support (search for similar items in EconPapers)
JEL-codes: G24 G34 G38 L10 L26 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2019-07-02
New Economics Papers: this item is included in nep-cfn, nep-com, nep-ent and nep-ino
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Journal Article: A theory of gazelle growth: Competition, venture capital finance and policy (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:iuiwop:1291

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