IS THE ENTERPRISE CREATION IMPORTANCE OF VENTURE CAPITAL IN AN EMERGING MARKET REAL?
ANSWERS FROM JOHANNESBURG SECURITIES EXCHANGE'S IPOS
University of Witwatersrand
Venture capital’s success in aiding enterprise creation in developed economies and its characteristic design for channeling equity capital to fledgling enterprises beyond the limits of bank term loans, have led some to suggest venture capital can play a role in bridging the enormous capital (financing) gap in the less endowed capital markets of emerging economies. I conduct a set of empirical tests on the importance of venture capital support for enterprise creation in an emerging market as well as examine its motivations for being. I find evidence of venture capital support for enterprise creation; in particular, its combined effectiveness on firm performance is positive when firms’ corporate governance characteristics are appropriated. Results also suggest that the dominant motivation for venture capital existence in the South African market is the mitigation of information asymmetry rather than the timing of exit from portfolio firms.