Venture Capital Investments and Merger and Acquisition Activity Around the World

Abstract

We examine the relation between venture capital (VC) investments and mergers and acquisitions (M&A) activity around the world. We find evidence of a strong positive association between VC investments and lagged M&A activity, consistent with the hypothesis that an active M&A market provides viable exit opportunities for VC companies and therefore incentivizes them to engage in more deals. We also explore the effects of country-level pro-takeover legislation passed internationally (positive shocks), and US state-level antitakeover business combination laws (negative shocks), on VC activity. We find significant post-law changes in VC activity. VC activity intensifies after enactment of country-level takeover friendly legislation and decreases following passage of state antitakeover laws in the U.S.