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The impact of patenting on the size of high-tech firms: the role of venture capital and product market regulation

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Abstract

We investigate how public policies related to product market regulation (PMR) influence the ability of European young venture-capital (VC) backed firms compared to a sample of matched non-VC backed firms to grow in size in proportion to their innovative activity. Whereas VCs can presumably offer value-added services to overcome the regulatory constraints of PMR, we find that VC-backed firms relative to non-VC backed ones are more adversely sensitive to these policies. This evidence indicates that PMR impedes the most VC-backed firms’ high-potential for innovation-driven growth.

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Notes

  1. Several previous studies have used the VICO database to analyze the impact of VC investments on firms’ innovation (Bertoni and Tykvová 2015), growth (Colombo et al. 2014; Grilli and Murtinu 2014, 2015), productivity (e.g., Croce et al. 2013; Colombo and Murtinu 2016), likelihood of going public (Cumming et al. 2014) and other performance measure (e.g. participation of firms in research projects funded by the European Commission, (Colombo et al. 2012, 2016). For a detailed description of the VICO database, see Bertoni and Martí (Bertoni and Martí 2011).

  2. For instance, corporate VC investors generally have the objective to open a “technology window” on the promising new technologies developed by portfolio companies (see e.g. Siegel et al. 1988; Ernst et al. 2005; Dushnitsky and Lenox 2005; Benson and Ziedonis 2009), while bank VC investors aim at generating additional demand for the commercial and investment bank services provided by their parent company (Hellmann et al. 2008). For an anlysis of the pattern of investment of different VC types, see Bertoni et al. (2015).

  3. We don't present the results from instrumental variable fixed effect panel models with the total sales as dependent variable because the instruments fail to pass weak identification tests. These results are available from authors upon request.

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  1. Milan, Italy

    Massimo G. Colombo & Kourosh Shafi

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  1. Massimo G. Colombo
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Correspondence to Kourosh Shafi.

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Colombo, M.G., Shafi, K. The impact of patenting on the size of high-tech firms: the role of venture capital and product market regulation. Econ Polit Ind 43, 85–103 (2016). https://doi.org/10.1007/s40812-015-0023-4

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