Government as a Source of Capital for Entrepreneurs : Evidence from Entrepreneurial Exits

We examine the impact of government ownership on venture-backed private firm exits spanning 50 countries over the years 1990-2010. The data examined indicate that, relative to deals in which the investor base is purely nongovernment, private firms that have government ownership have higher dollar exit values. Subsample analysis on initial public offerings (IPOs) and mergers/acquisitions (M&A) shows that IPOs drive these results. The evidence is consistent with the view that while government may be inefficient, there is potential value for an IPO firm. The results suggest that the most important source of this benefit for IPOs appears to be access to capital when/where markets are experiencing constraints. Results remain after various checks for endogeneity and robustness are undertaken