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Realities of long-term post investment performance for venture-backed enterprises

Reid, Gavin C. and Smith, Julia A. (2006) Realities of long-term post investment performance for venture-backed enterprises. In: Venture Capital and the Changing World of Entrepreneurship. Research in entrepreneurship and management . Information Age Publishing, Greenwich, Connecticut, USA. ISBN 1593114346

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This paper constructs a model of long-run performance for SMEs that have received venture capital backing. The model explains performance by financial structure. FAME data are used for estimating performance equations over the period 1989 to 2004 for UK businesses in their post-investment period. The econometrics uses robust techniques, including least absolute error (LAE) and Tukey trimean estimation. It is shown that the key determinants of performance (measured by ROSF) are profit margins and risk, with lesser, but significant, roles played by liquidity and gearing. The sample is used to identify consistently high performers, and chronic low performers. From the latter group, two detailed case studies illustrate how chronic low performance can emerge, in each case caused by failure to achieve technological milestones, and thereby failing, ultimately, to convince investors of potential company worth.

Item type: Book Section
ID code: 2834
Notes: CRIEFF Discussion Paper 0503 Also present in Frontiers of Entrepreneurship Research 2005 Strathprints ID 8591.
Keywords: venture capital, investment performance, LAE estimation, research milestones, business, Finance, Accounting, Statistics
Subjects: Social Sciences > Finance
Social Sciences > Commerce > Accounting
Social Sciences > Statistics
Department: Strathclyde Business School > Accounting and Finance
Depositing user: Dr Julia A. Smith
Date Deposited: 17 Jan 2007
Last modified: 11 Dec 2015 21:28
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