In this study we examine how venture capital (VC) firms influence the export behavior of their investee companies. VC firms perform an important governance function for investee companies by providing monitoring and value-added activities. Drawing on agency theory, the resource-based view of the firm and governance life-cycle theory we hypothesize that the relationship between VC governance resources and investee exporting behavior is moderated by investment stage. Employing a sample of 340 VC-backed firms, our results confirm this hypothesis. Monitoring resources are most effective in promoting export behavior for late-stage ventures and value-added resources in promoting export behavior in early-stage ventures.
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In the UK, for example, the Companies Act 1967 required directors to include a statement of the value of goods exported as long as turnover was above a certain level, with subsequent legislation allowing an exemption where this would seriously be prejudicial to the company’s interests. In contrast, in the Netherlands, for example, private companies are not obliged to disclose exports.
We have constructed this variable so that the 61.7% of the sample who have responded that they have invested abroad = 1 and all other = 0. An alternative would be to specify those for whom we do not have information as being zero. Doing this, however, results in a significant loss of observations, but leaves our key results unchanged. As a robustness check we also defined internationalization as the VC having branch offices abroad; the results were unchanged.
Following the suggestion of an anonymous referee, we also experimented with the inclusion of other control variables in the model, namely including GDP in the exporting equation and several alternative variables to controls for EU integration (including adoption of the Euro). Without exception these variables had little explanatory power and had only a marginal effect on the coefficients of the key variables in our model. These results are not reported here but are available on request.
There is statistical support for this hypothesis in that, when we included GDP in the main regression equation it attracts an insignificant coefficient. Reassuringly, our key results are robust to the exclusion of different sub-sets of control variables from the selection and main regression equations.
VCMVCVA and VCVA VCM are included as these variables may play a role in removing or imposing constraints that affect the decision over whether or not to export. We exclude EARLY from the selection model on the grounds that the decision over whether or not to export (as opposed to how much to export) is affected primarily by the nature of the firm and industry rather than by the stage of the firm. Again there is empirical support for this proposition in that these variables attract insignificant coefficients when included in the selection equation without materially changing the other results.
The marginal effects are reported here using 0.1 as the degree of change as this is a more realistic figure than a full unit. If a 1 unit change was to occur, e.g., if the venture capitalists’ value-added contribution (VCVA) was to increase in absolute terms by 1 unit then the marginal effect and standard error would need to be multiplied by 10 as reported here. In this instance a 1 unit change in the VCVA would result in an increase in export intensity of 3.463 (standard error 1.217) of a percentage point.
As highlighted on footnote 3, the marginal effects are reported here using 0.1 as the degree of change as this is a more realistic figure than a full unit. Hence, in order to calculate the marginal effect of a full unit change in VCM or VCVA the marginal effects and standard errors reported here would need to be multiplied by 10.
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Support for this research from EVCA is acknowledged with thanks as is the financial support for CMBOR from Barclays Private Equity and Deloitte. We also thank the editors of the special issue, anonymous reviewers and participants in the Lally Darden Research Retreat at Humbolt 2006 for their insightful comments.
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Lockett, A., Wright, M., Burrows, A. et al. The export intensity of venture capital backed companies. Small Bus Econ 31, 39–58 (2008). https://doi.org/10.1007/s11187-008-9109-y
- Venture capital
- International trade