Tolerance for Failure and Corporate Innovation

• 成果类型: Article
• 署名作者: Tian, Xuan; Wang, Tracy Yue
• 署名单位: Indiana University System; IU Kelley School of Business; Indiana University Bloomington; University of Minnesota System; University of Minnesota Twin Cities
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhr130
• 发表日期: 2014
• 页码: 211
• 关键词: Career concerns; PRIVATE EQUITY; venture; INVESTMENT; bankruptcy; money

摘要

Based on a sample of venture capital (VC)-backed IPO firms, we examine whether tolerance for failure spurs corporate innovation. We develop a novel measure of VC investors' failure tolerance by examining their willingness to continue investing in underperforming ventures. We find that IPO firms backed by more failure-tolerant VC investors are significantly more innovative and VC failure tolerance is particularly important for ventures that are subject to high failure risk. We show that these results are not driven by endogenous matching between failure-tolerant VC firms and start-ups with high ex ante innovative potential. We also examine the determinants of the cross-sectional heterogeneity in a VC firm's failure tolerance. We find that both capital constraints and career concerns can negatively distort a VC firm's failure tolerance. Less experienced VC firms are more exposed to these distortions, making them less failure tolerant than are more established VC firms.