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EconNet: How Sensitive is Young Firm Investment to the Cost of Outside Equity?

Date: 23 Mar 2017

Time: 12:00 PM

Location: 1300 New York Ave., NW, Washington DC - Room SE-1035, United States

Event open to the public (You can bring your lunch) - Registration required to enter the IDB building


Title: How Sensitive is Young Firm Investment to the Cost of Outside Equity?
Presenter: Juanita Gonzalez Uribe, LSE

Abstract: We estimate the sensitivity of investment to the cost of outside equity for young firms. For estimation, we exploit differences across firms in eligibility to a new tax relief program for individual outside equity investors in the UK. On average, investment increases 1.6% in response to a 10% drop in the cost of outside equity. This average conceals substantial heterogeneity: 1% of eligible firms issue equity in response to a subsidy that would have doubled investors’ returns, implying large fixed issuance costs for the majority of firms. Conditional on issuing new equity, however, firms invest eight times the issued amount. The results imply a large complementarity between outside equity and other funding sources.

Contact information: research@iadb.org

EconNet is the technical seminar series initiative of the Research Department and Knowledge and Learning Sector of the IDB. The series consist of brown-bag seminars at which an invited researcher presents his or her latest research findings on development issues relevant to Latin America and the Caribbean. EconNet takes place every Thursday from 12 noon to 1:30 p.m.

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