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Venture Capitalism In Eastern Europe Essay

2334 words - 9 pages

Beginning with the work of researchers as Jaffee and Russell (1976) and Stiglitz and Weiss (1981), the arguments in favour of existing market imperfections that cause difficulty for firms to obtain external financial resources in addition to the internal ones, representing the main constraint on investment decisions, have gained a special attention in the literature. The firms involved in technological innovation may be the most affected by the financial market imperfections that characterize also bank financing (Carpenter and Petersen, 2002). In general, banks lack the skills for ex-ante evaluation and ex-post monitoring of investment projects developed by innovative enterprises. Although, in principle, adverse selection and moral hazard can be mitigated by providing guarantees to creditors (Berger and Udell, 1998), significant proportions of intangible assets in the total assets held by the high R&D intensity firms reduce their access to bank financing. Reduced access to the traditional external resources limits funding and threatens innovative companies to grow. Venture capitals are, generally, considered to be the most appropriate financial resources for the small and medium-sized enterprises (SMEs) that innovate technologically. Venture capital firms do not only provide resources for financing of projects, but they give also experience in research activities and diffusion of innovations, shaping the company's business strategy.
This study contributes by characterising the venture capital market and factors with impact on investments made in Romania. Of the latter perspective, we introduce macroeconomic factors identified in the literature. However, there are few studies devoted to the identification of factors affecting the risk capital in Europe and, in particular, in Eastern Europe countries, where the relevant market is relatively young compared with the venture capital industries of Western Europe. The empirical studies in the literature proceed to test the incidence of various factors on the example of OECD countries (Jeng and Wells, 1998; Romain and van Pottelsberghe, 2004; Clarysse et al., 2009) or, of groups of states of the EU (Cherif and Gazar, 2011; Kelly, 2010) that are characterised by heterogeneous markets and institutional conditions. We consider that a nuanced approach, by tacking into account the particularities of the venture capital market may lead to a better understanding of the incidence and intensity of manifestation of various factors, representing a useful approach in assessing the decisions to be adopted by government policy in order to attract financial resources for innovative enterprises. In principle, measures can be adopted both on the demand and supply side, depending on the factors affecting the two. The supply is determined by the ability and willingness of investors to provide financial resources to funds (limited partners), which, in turn, can be allocated by the venture capital firms at the level of...

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