Innovation and Performance of Companies with a Legacy of Risk Capital Funding: A Swedish Perspective

Abstract

The purpose of this paper is to investigate how R&D investments affect public companies that was backed by risk capital in their early stage. In our research, we investigate whether firms with prior risk capital involvement can better manage investments in R&D and if this effect is observable on a business performance level. The sample contains 280 companies that were listed on the Swedish stock exchange between year 2000-2015. Even though a lot of research has been devoted both to the area of firm innovativeness and to the area of risk capital investor’s performance, not much effort has been aimed in combining these two areas of interest. This study will therefore contribute to an additional perspective, combining the fields of innovation and finance. The indicators that was chosen in order to measure business performance are stock price and profitability which allows us to shape a broader view of the subject. The identified problem of this thesis was addressed using a quantitative method where general least squares was applied in order to estimate the effect. The findings indicate that innovation intensity have a positive impact on firm performance in terms of stock price for firms previously funded by risk capital. Nonetheless, this is not true regarding the impact on profitability, where the results instead point to a negative effect of R&D spending in previously risk capital backed firms. This result stress the importance of how business performance is measured, as the effect of R&D give different outcome of stock price compared to profitability.