Financial constraints in family firms and the role of venture capital
- Croce, Annalisa
- Martí, José
ISSN: 0391-2078, 1972-4977
Año de publicación: 2016
Volumen: 44
Número: 1
Páginas: 119-144
Tipo: Artículo
Otras publicaciones en: Economia e Politica Industriale
Resumen
Based on the natural reluctance of family-controlled firms (FCFs) to accept external shareholders, in this paper we analyze whether investment sensitivity to internally generated cash flow is a driver of venture capital (VC) participation in those firms. We argue that FCFs are more likely to accept external investors when they are subject to serious financial constraints. We also aim to ascertain to what extent VC involvement contributes to reducing the dependency between investments and internal cash flow. We focus on a representative sample of Spanish privately held FCFs that received the initial VC investment between 1997 and 2006, and compare the investment-cash flow sensitivity of VC-backed FCFs with that of non VC-backed FCFs. We find that FCFs that received VC were more financially constrained than other similar non VC-backed FCFs before receiving VC. This finding is especially true in first generation FCFs, thus providing additional evidence on the reluctance of FCFs to accept external shareholders. We also find that VC-backed FCFs, in particular first generation ones, significantly reduce the sensitivity of investments to cash flow after the initial VC round.
Referencias bibliográficas
- Abel, A. B. (1980). Empirical investment equations: An integrative framework. In Carnegie-Rochester Conference Series on Public Policy (Vol. 12, No. (1), pp. 39–91).
- Admati, A. R., & Pfleiderer, P. (1994). Robust financial contracting and the role of venture capitalists. Journal of Finance, 49(2), 371–402.
- Almeida, H., & Campello, M. (2007). Financial constraints, asset tangibility, and corporate investment. Review of Financial Studies, 20(5), 1429–1460.
- Anderson, R. C., Mansi, S. A., & Reeb, D. M. (2003). Founding family ownership and the agency cost of debt. Journal of Financial Economics, 68(2), 263–285.
- Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. The Review of Economic Studies, 58(2), 277–297.
- Audretsch, D. B., Lehmann, E. E., Paleari, S., & Vismara, S. (2016). Entrepreneurial finance and technology transfer. The Journal of Technology Transfer, 41, 1–9.
- Baker, M., Stein, J. C., & Wurgler, J. (2003). When does the market matter? Stock prices and the investment of equity-dependent firms. Quarterly Journal of Economics, 118(3), 969–1005.
- Balboa, M., Martí, J., & Tresierra-Tanaka, Á. (2016) Are firms accessing venture funding more financially constrained? New evidence from capital structure adjustments. The European Journal of Finance. Retrieved http://www.tandfonline.com/doi/full/10.1080/1351847X.2016.1151803.
- Balboa, M., Martí, J., & Zieling, N. (2011). Impact of funding and value added on spanish venture capital-backed firms. Innovation: The European Journal of Social Science Research, 24(4), 449–466.
- Bammens, Y., Voordeckers, W., & Van Gils, A. (2008). Boards of directors in family firms: A generational perspective. Small Business Economics, 31(2), 163–180.
- Berrone, P., Cruz, C., & Gómez-Mejía, L. R. (2012). Socioemotional wealth in family firms: Theoretical dimensions, assessment approaches, and agenda for future research. Family Business Review, 25(3), 258–279. Bertoni, F., Colombo, M. G., & Croce, A. (2010). The effect of venture capital financing on the sensitivity to cash flow of firm’s investments. European Financial Management, 16(4), 528–551. Bertoni, F., Croce, A., & Guerini, M. (2015). Venture capital and the investment curve of young high-tech companies. Journal of Corporate Finance, 35, 159–176.
- Bertoni, F., Ferrer, M. A., & Martí, J. (2013). The different roles played by venture capital and private equity investors on the investment activity of their portfolio firms. Small Business Economics, 40(3), 607–633.
- Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87(1), 115–143.
- Bond, S. R. (2002). Dynamic panel data models: A guide to micro data methods and practice. Portuguese Economic Journal, 1(2), 141–162.
- Bond, S., Elston, J. A., Mairesse, J., & Mulkay, B. (2003). Financial factors and investment in Belgium, France, Germany, and the United Kingdom: A comparison using company panel data. Review of Economics and Statistics, 85(1), 153–165.
- Bond, S., & Meghir, C. (1994). Dynamic investment models and the firm’s financial policy. Review of Economic Studies, 61(2), 197–222.
- Bond, S. & Van Reenen, J. (2007). Micro-Econometric Models of Investment and Employment. pp. 4417–98 In J. J. Heckman & E. E. Leamer (Eds.) Handbook of econometrics (Vol. 6A). Amsterdam: Elsevier.
- Chemmanur, T. J., Krishnan, K., & Nandy, D. K. (2011). How does venture capital financing improve efficiency in private firms? A look beneath the surface. Review of Financial Studies, 24(617), 4037–4090. Chrisman, J. J., Chua, J. H., & Litz, R. A. (2004). Comparing the agency costs of family and non-family firms: Conceptual issues and exploratory evidence. Entrepreneurship: Theory and Practice, 28(4), 335–354.
- Chua, J. H., Chrisman, J. J., & Sharma, P. (1999). Defining the family business by behavior. Entrepreneurship Theory and Practice, 23(4), 19–39.
- Cleary, S. (1999). The relationship between firm investment and financial status. Journal of Finance, 54(2), 673–692. Cleary, S. (2006). International corporate investment and the relationships between financial constraint measures. Journal of Banking & Finance, 30(5), 1559–1580.
- Coleman, S., & Carsky, M. (1999). Sources of capital for small family-owned businesses: Evidence from the national survey of of small busines finances. Family Business Review, 12(1), 73–85.
- Colombo, M. G., Croce, A., & Guerini, M. (2014a). Does informal risk capital relax the financial constraints of high-tech entrepreneurial firms. Applied Economic Letters, 21(5), 335–339. Colombo, M. G., Croce, A., & Murtinu, S. (2014b). Ownership structure, horizontal agency costs and the performance of high-tech entrepreneurial firms. Small Business Economics, 42(2), 265–282.
- Colombo, M. G., & Murtinu, S. (2016). Venture capital investments in Europe and portfolio firms' economic performance: Independent versus corporate investors. Journal of Economics & Management Strategy. doi:10.1111/jems.12170
- Croce, A., & Martí, J. (2016). Productivity growth in private-equity–backed family firms. Entrepreneurship Theory and Practice, 40(3), 657–683. Croce, A., Martí, J., & Murtinu, S. (2013). The impact of venture capital on the productivity growth of european entrepreneurial firms: ‘Screening’ or ‘Value added’ Effect? Journal of Business Venturing, 28(4), 489–510.
- Cumming, D. J., Aurelie, S., Tarsalewska M., & Zhu, J. (2016). Pre-Going Private Ownership around the World. Retrieved http://dx.doi.org/10.2139/ssrn.2724511
- Cumming, D. J., Grilli, L., & Murtinu, S. (2014). Governmental and independent venture capital investments in Europe: A firm-level performance analysis. Journal of Corporate Finance. Retrieved doi:10.1016/j.jcorpfin.2014.10.016.
- Dixon, W. J. (1960). Simplified estimation from censored normal samples. The Annals of Mathematical Statistics, 31(2), 385–391.
- Dobrzynski, J. H. (1993). Relationship investing business. Business Week, 3309, 68–75.
- Engel, D., & Stiebale, J. (2014). Private equity, investment and financial constraints: Firm-level evidence for france and the United Kingdom. Small Business Economics, 43(1), 197–212. Fama, E. F., & Jensen, M. C. (1983a). Agency problems and residual claims. Journal of Law and Economics, 26(2), 327–349
- Fama, E. F., & Jensen, M. C. (1983b). Separation of ownership and control. Journal of Law and Economics, 26(2), 301–325.
- Fazzari, S. M., Glenn, H. R., & Petersen, B. C. (1988). Financing constraints and corporate investment. Brooking Papers on Economics Activity, 1, 141–206.
- Gallo, M. A. (1995). The role of family business and its distinctive characteristic behavior in industrial activity. Family Business Review, 8(2), 83–97. Gallo, M. A., & Vilaseca, A. (1996). Finance in family business. Family Business Review, 4(9), 387–401. Gersick, K. F., Davis, J. A., Hampton, M. M., & Lansberg, I. (1996). Generation to generation: Life cycles of the family business. Boston: Harvard Business School Press.
- Gómez-Mejía, L. R., Haynes, K. T., Núñez-Nickel, M., Jacobson, K. J. L., & Moyano-Fuentes, J. (2007). Socioemotional wealth and business risk: Evidence from spanish olive oil mills. Administrative Science Quarterly, 52(1), 106–137.
- Gómez-Mejía, L. R., Hoskisson, R. E., Makri, M., Sirmon, D. G., & Campbel, J. T. (2011). Innovation and the Preservation of Socioemotional in Familly-Controlled High Technology Firm. Unpublished Work. http://www.nd.edu/~cobweb/doc/InnAndThePreOfSoc.pdf. Accessed 1 April 2012.
- Gómez-Mejía, L. R., Makri, M., & Kintana, M. L. (2010). Diversification decisions in family-controlled firms. Journal of Management Studies, 47(2), 223–252.
- Gorman, M., & Sahlman, W. A. (1989). What do venture capitalists do? Journal of Business Venturing, 4(4), 231–248.
- Grilli, L., & Murtinu, S. (2014). Government, venture capital and the growth of European high-tech entrepreneurial firms. Research Policy, 43(9), 1523–1543.
- Grilli, L., & Murtinu, S. (2015). New technology-based firms in Europe: market penetration, public venture capital, and timing of investment. Industrial and Corporate Change, 24(5), 1109–1148.
- Guariglia, Alessandra. (2008). Internal financial constraints, external financial constraints, and investment choice: Evidence from a panel of UK firms. Journal of Banking & Finance, 32(9), 1795–1809.
- Hall, R. E., & Jorgenson, D. W. (1967). Tax policy and investment behavior. American Economic Review, 57(3), 391–414.
- Hubbard, R. G. (1998). Capital-market imperfections and investment. Journal of Economic Literature, 36(1), 193–225.
- Jensen, M. C. (1986). Agency costs of free cash flow, corporate finance, and takeovers. American Economic Review, 76(2), 323–329.
- Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360. Jorgenson, D. W. (1963). Capital theory and investment behavior. American Economic Review, 53(2), 247–259.
- Kadapakkam, P.-R., Kumar, P. C., & Riddick, L. A. (1998). The impact of cash flows and firm size on investment: The international evidence. Journal of Banking & Finance, 22(3), 293–320.
- Kaplan, S. N., & Zingales, L. (1997). Do investment-cash flow sensitivities provide useful measures of financing constraints? Quarterly Journal of Economics, 112(1), 169–215.
- Kaplan, S. N., & Zingales, L. (2000). Investment-cash flow sensitivities are not valid measures of financing constraints. Quarterly Journal of Economics, 115(2), 707–712.
- Kellermanns, F. W., Eddleston, K. A., & Zellweger, T. M. (2012). Extending the socioemotional wealth perspective: A look at the dark side. Entrepreneurship Theory and Practice, 36(6), 1175–1182.
- López-Gracia, J., & Sánchez-Andújar, S. (2007). Financial structure of the family business: Evidence from a group of small spanish firms. Family Business Review, 20(4), 269–287.
- Martí, J., Menéndez-Requejo, S., & Rottke, O. M. (2013). the impact of venture capital on family businesses: Evidence from Spain. Journal of World Business, 48(3), 420–430.
- McConaughy, D. L. (1999). Is the cost of capital different for family firms? Family Business Review, 12(4), 353–360.
- McConaughy, D. L., & Phillips, G. M. (1999). Founders versus descendants: The profitability, efficiency, growth characteristics and financing in large, public, founding-family-controlled firms. Family Business Review, 12(2), 123–131. Megginson, W. L., & Weiss, K. A. (1991). Venture capitalist certification in initial public offerings. Journal of Finance, 46(3), 879–903.
- Modigliani, F., & Miller, M. (1958). The cost of capital, corporation finance and the theory of investment. American Economic Review, 48(3), 261–297.
- Myers, S. C., & Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics, 13(2), 187–221. Pawlina, G., & Renneboog, L. D. R. (2005). Is investment-cash flow sensitivity caused by agency costs or asymmetric information? Evidence from the UK. European Financial Management, 11(4), 483–513.
- Poutziouris, P. (2000). Venture capital and small-medium size family companies: An analysis from the demand perspective. In P. Poutziouris (Eds.) Family Business-Tradition or entrepreneurship in the new economy (255–82). London: FBN.
- Poutziouris, P. Z. (2001). The views of family companies on venture capital: Empirical evidence from the UK small to medium-size enterprising economy. Family Business Review, 14(3), 277–291.
- Puri, M., & Zarutskie, R. (2012). On the life cycle dynamics of venture-capital- and non-venture-capital-financed firms. Journal of Finance, 67(6), 2247–2293.
- Randøy, T., & Goel, S. (2003). Ownership structure, founder leadership, and performance in Norwegian SMEs: Implications for financing entrepreneurial opportunities. Journal of Business Venturing, 18(5), 619–637.
- Romano, C. A., Tanewski, G. A., & Smyrnios, K. X. (2001). Capital structure decision making: a model for family businesses. Journal of Business Venturing, 16(3), 285–310.
- Sahlman, W. A. (1990). The structure and governance of venture capital. Journal of Financial Economics, 27, 473–521.
- Sapienza, H., Manigart, S., & Vermeir, W. (1996). Venture capitalist governance and value added in four countries. Journal of Business Venturing, 11(6), 439–469.
- Schulze, W. S., Lubatkin, M. H., & Dino, R. N. (2003). Exploring the agency consequences of ownership dispersion among the directors of private family firms. Academy of Management Journal, 46(2), 179–194.
- Sirmon, D. G., & Hitt, M. A. (2003). Managing resources: Linking unique resources, management, and wealth creation in family firms. Entrepreneurship Theory and Practice, 27(4), 339–358.
- Sørensen, M. (2007). How smart is smart money? A two-sided matching model of venture capital. Journal of Finance, 62(6), 2725–2762. Tian, X. (2012). The role of venture capital syndication in value creation for entrepreneurial firms. Review of Finance, 16(1), 245–283. Tykvová, T. (2006). How do investment patterns of independent and captive private equity funds differ? Evidence from Germany. Financial Markets and Portfolio Management, 20(4), 399–418.
- Upton, N., & Petty, W. (2000). Venture capital and U.S. family business. Venture Capital: An International Journal of Entrepreneurial Finance, 2(1), 27–39.
- Vogt, S.C. (1994). The cash flow/investment relationship: Evidence from U.S. manufacturing firms. Financial Management 23(2), 3–20. Retrieved http://www.jstor.org/stable/3665735.
- Ward, J., & Aronoff, C. E. (1991). The power of patient capital. Nation’s Business, 79(9), 48–49.
- Windmeijer, F. (2005). A finite sample correction for the variance of linear efficient two-step GMM estimators. Journal of Econometrics, 126(1), 25–51.
- Young, M. N., Peng, M. W., Ahlstrom, D., Bruton, G. D., & Jiang, Y. (2008). Corporate governance in emerging economies: A review of the principal—principal perspective. Journal of Management Studies, 45(January), 196–220. Retrieved http://onlinelibrary.wiley.com/doi/10.1111/j.1467-6486.2007.00752.x/full.
- Zellweger, T. M. (2007). Time horizon, costs of equity capital, and generic investment strategies of firms. Family Business Review, 20(1), 1–15.
- Zellweger, T. M., Kellermanns, F. W., Chrisman, J. J., & Chua, J. H. (2012). Family control and family firm valuation by family CEOs: The importance of intentions for transgenerational control. Organization Science, 23(3), 851–868.