Nov 16 2015

Venture capital investments and the technological performance of portfolio firms

Research Policy, Volume 45, Issue 1, February 2016, Pages 303–318 (Open Access)

with Andrea Mina

Abstract: What is the relationship between venture capitalists’ selection of investment targets and the effects of these investments on the patenting performance of portfolio companies? In this paper, we set out a modelling and estimation framework designed to discover whether venture capital (VC) increases the patenting performance of firms or whether this effect is a consequence of prior investment selection based on firms’ patent output. We develop simultaneous models predicting the likelihood that firms attract VC financing, the likelihood that they patent, and the number of patents applied for and granted. Fully accounting for the endogeneity of investment, we find that the effect of VC on patenting is insignificant or negative, in contrast to the results generated by simpler models with independent equations. Our findings show that venture capitalists follow patent signals to invest in companies with commercially viable know-how and suggest that they are more likely to rationalise, rather than increase, the patenting output of portfolio firms.

Apr 16 2015

Change to USS rules causes wealth transfers

Updated on 24 April 2016

The Universities Superannuation Scheme’s (USS), one of the three largest UK pension schemes alongside the pension schemes of BT and Lloyds, went ahead with its proposed changes to employees’ pensions and cut expected pensions by 25%. Most of the USS’ current members had their pension linked to their final salary upon retiring, which has been replaced by an inflation indexing rule from 1 April 2016. The new scheme ignores career progression and other salary increases. This will lead to substantial wealth transfers from members of the final salary section to other USS members. Under the new rules, the option for final-salary members to receive a pension based on a future pensionable salary has been removed retroactively, which reduces the value of those members’ accrued benefits. Read the rest of this entry »

Feb 24 2014

Liquidity, Technological Opportunities, and the Stage Distribution of Venture Capital Investments

Financial Management, Volume 43, Issue 2, pages 291–325, Summer 2014, available online.

with Andrea Mina

Abstract: This paper explores the determinants of the stage distribution of European venture capital investments from 1990 to 2011. Consistent with liquidity risk theory, we find that the likelihood of investing in earlier stages increases relative to all private equity investments during liquidity crisis years. While liquidity is the main driver of acquisition investments and, to some extent, of expansion financings, technological opportunities are overall the main driver of early and late stage venture capital investments. In contrast to the dotcom crash, the recent financial crisis negatively affected the relative likelihood of expansion investments, but not of early and late stage investments.

Oct 07 2013

Dynamic financial constraints and innovation: Evidence from the UK innovation surveys

with Andrea Mina

Abstract: Does innovation cause financial constraints? And how do financial constraints affect firm innovation activities? In this paper we address the challenge of separating bi-directional causal effects in the relationship between innovation and financial constraints. Using the longest panel that can to date be derived from the UK Innovation Surveys, we construct novel simultaneous equations models with indicators for innovation, including expenditures for internal and external R&D, product innovation and process innovation, and for perceived financial constraints. The empirical analysis reveals a persistent impact of innovation inputs, and also outputs, on the likelihood that firms experience financial constraints. This effect is strongest for the observation of an R&D programme and relatively weak for R&D expenditures. Innovation outputs in the form of products new to the market seem to cause financial constraints – an important finding from a policy perspective. The reverse effect of financial constraints on innovation appears negligible.

Available here (latest version: September 2013).

We won the best paper award at this year’s CONCORDi conference on “Financing R&D and innovation for corporate growth in the EU: Strategies, drivers and barriers” for Andrea Mina’s and my paper on “Dynamic financial constraints and innovation: Evidence from the UK innovation surveys”. Thanks to the conference team for an exceptionally productive time in Seville and the conference participants for their encouraging and constructive comments!

Apr 21 2013

Signalling, absorptive capacity and the geographic patterns of academic knowledge exchange

with Alan Hughes and Michael Kitson

Abstract: In this paper, we investigate the geographic distance in collaborations between academics and external organisations across different knowledge exchange channels. This analysis is based on a unique large sample of UK academics. We ask the following questions. First, how far does academic knowledge, explicit or tacit, travel? Second, which academics engage in which collaborations? Third, how does the type of knowledge transfer moderate the effect of individual and department-level absorptive capacity on geographic distance? Fourth, which quality signals or market characteristics affect the formation and distance of knowledge exchange collaborations? We find that the capacity to identify and absorb knowledge helps to explain the geographic distance in collaborations. In part
icular, age, academic seniority and specific types of professional experience are positively related to geographic distance in transfers of tacit knowledge. Strong common effects of seniority and research quality across channels suggest that the ability to signal the availability and quality of knowledge as a tradable asset dominates the explanatory power of absorptive capacity. The effects of support at the university level are weak, while regional concentration of business R&D expenditures increases collaboration distance.

Available here.

Latest version: March 2013

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