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Stage‐specific effects of the Sarbanes‐Oxley Act

Stage‐specific effects of the Sarbanes‐Oxley Act Purpose – The purpose of this paper is to empirically demonstrate that drivers of venture capital (VC) investments are different across three broadly defined sectors: high‐technology manufacturing, medium‐technology manufacturing and services, and low‐technology services. Moreover, such differences also exist across industries within each of these sectors. Design/methodology/approach – The basic hypothesis is that “not only different stages of VC investments have different drivers, but VC investments in different sectors of the economy are also driven by different drivers.” The paper tests this hypothesis using a Poterba (1989) type supply and demand framework in the multivariate time‐series regression analysis. Findings – This paper empirically demonstrates that drivers of VC investments are different across three broadly defined sectors: high‐technology manufacturing, medium‐technology manufacturing and services, and low‐technology services. Moreover, such differences also exist by stages of investment and across industries within each of these sectors. In particular, the paper finds that the importance of the number of VC‐led initial public offering (IPO) transactions as the main driver of VC investment decreases with the level of technology involved in the sector. IPO transactions are particularly important in software, networking and equipment, and business products and services industries. In contrast to earlier literature, however, the paper do not find a more pronounced effect of IPOs for seed and late stages of VC investments. Similarly, the positive impact Sarbanes‐Oxley Act of 2002 – which mainly impacts public companies – also intensifies with a decrease in the level of technology involved in the sector, and the paper do not find a negative impact. The Act is important particularly for VC investments in medium‐ and low‐tech sectors and in early or expansion stages. Originality/value – In analyzing the determinants of VC in a supply and demand framework as in Poterba (1989), the paper differentiates between different sectors (17 industries) and stages of VC (four stages: seed, early, expansion, late). Such level of differentiation is novel and allows more refined and better targeted public policy measures. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Enterpreneurship and Public Policy Emerald Publishing

Stage‐specific effects of the Sarbanes‐Oxley Act

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References (24)

Publisher
Emerald Publishing
Copyright
Copyright © 2013 Emerald Group Publishing Limited. All rights reserved.
ISSN
2045-2101
DOI
10.1108/JEPP-11-2011-0027
Publisher site
See Article on Publisher Site

Abstract

Purpose – The purpose of this paper is to empirically demonstrate that drivers of venture capital (VC) investments are different across three broadly defined sectors: high‐technology manufacturing, medium‐technology manufacturing and services, and low‐technology services. Moreover, such differences also exist across industries within each of these sectors. Design/methodology/approach – The basic hypothesis is that “not only different stages of VC investments have different drivers, but VC investments in different sectors of the economy are also driven by different drivers.” The paper tests this hypothesis using a Poterba (1989) type supply and demand framework in the multivariate time‐series regression analysis. Findings – This paper empirically demonstrates that drivers of VC investments are different across three broadly defined sectors: high‐technology manufacturing, medium‐technology manufacturing and services, and low‐technology services. Moreover, such differences also exist by stages of investment and across industries within each of these sectors. In particular, the paper finds that the importance of the number of VC‐led initial public offering (IPO) transactions as the main driver of VC investment decreases with the level of technology involved in the sector. IPO transactions are particularly important in software, networking and equipment, and business products and services industries. In contrast to earlier literature, however, the paper do not find a more pronounced effect of IPOs for seed and late stages of VC investments. Similarly, the positive impact Sarbanes‐Oxley Act of 2002 – which mainly impacts public companies – also intensifies with a decrease in the level of technology involved in the sector, and the paper do not find a negative impact. The Act is important particularly for VC investments in medium‐ and low‐tech sectors and in early or expansion stages. Originality/value – In analyzing the determinants of VC in a supply and demand framework as in Poterba (1989), the paper differentiates between different sectors (17 industries) and stages of VC (four stages: seed, early, expansion, late). Such level of differentiation is novel and allows more refined and better targeted public policy measures.

Journal

Journal of Enterpreneurship and Public PolicyEmerald Publishing

Published: Oct 4, 2013

Keywords: IPO; Venture capital; Sarbanes‐Oxley

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