Effect of venture capital and government support on the performance of venture firms in Korea

Abstract

This paper examines the effects of venture capital and government support on venture firms within the context of Korea. First, in the midst of an underdeveloped venture capital industry, it is necessary to understand if venture capital helps venture firms gain a fast Initial Public Offering (IPO) and increase financial performance. Second, this research examines if government support influences the IPO and financial performance of a firm among venture companies. We used a sample of Korean 727 venture firms to employ regression and survival analyses based on the types of dependent variables. Venture-capital-backed firms exhibited relatively faster performance growth and achieved faster IPO rates, although starting with low profitability as a startup. In addition, government support presented no impact on the financial gains and the IPO speed of a firm. This finding implies that Korean venture firms (despite a less-developed venture capital industry) have enjoyed a similar venture capital impact of a highly advanced venture capital industry. Regarding government support, government-subsidized firms exhibited a non-significant improvement of financial performance and a lowered IPO achievement. Policy implications dealing with a less mature venture capital industry are discussed.

Keywords:

• venture capital
• government support
• venture firm performance
• initial public offering
• Korean venture industry