Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/97760 
Year of Publication: 
2009
Series/Report no.: 
IMFS Working Paper Series No. 30
Publisher: 
Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS), Frankfurt a. M.
Abstract: 
This paper shows that active investors, such as venture capitalists, can affect the speed at which new ventures grow. In the absence of product market competition, new ventures financed by active investors grow faster initially, though in the long run those financed by passive investors are able to catch up. By contrast, in a competitive product market, new ventures financed by active investors may prey on rivals that are financed by passive investors by “strategically overinvesting” early on, resulting in long-run differences in investment, profits, and firm growth. The value of active investors is greater in highly competitive industries as well as in industries with learning curves, economies of scope, and network effects, as is typical for many “new economy” industries. For such industries, our model predicts that start-ups with access to venture capital may dominate their industry peers in the long run.
Subjects: 
Venture capital
dynamic investment
product market competition
JEL: 
G24
G32
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

Files in This Item:
File
Size
566.27 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.