How can entrepreneurial ventures withstand a
financial crisis?
A longitudinal study of the implications of the financial crisis, which manifested in July 2007, on entrepreneurial ventures’ financial structure and performance.
Omar Saleh
Dr. Tsvi Vinig, Faculty Advisor
University of Amsterdam
,
Amsterdam Business School Amsterdam, The Netherlands© Copyright by Omar Saleh, 2013. All Rights Reserved.
Table of contents
Abstract 4
1. Introduction 5
1.1 Statement of the Problem 6
1.2 Background and Need 8
1.3 Purpose of the Study 10
2. Linking Literature on Financial Crises and Entrepreneurial Ventures 12 2.1 The Financial Crises of 2007 and the Supply of Financial Services 13 2.2 The Crisis and the Opportunity to Start a Venture 15 2.3 The Crisis and Entrepreneurial Ventures’ Growth Ambitions 16 2.4 The Crisis and Entrepreneurial Ventures’ Optimal Financial Structure 18 2.5 The Link Between Financial Crises and New Ventures’ Financial Structure 20
3. Method 22
3.1 Sample 22
3.2 Measures and Measurement Instruments 23
3.2.1 Credit default swaps and economical distress 24 3.2.2 Bank loans and private equity investments to finance ventures 25 3.2.3 The number of newly founded ventures and their survival rates 26 3.3 The Validity and Reliability of the Measurement Instruments 27
3.4 Data Collection and Procedures 30
4. Results 34
4.1 Depiction of the Financial Crisis 34
4.2 Direct Effects of the Financial Crisis 36
4.3 Indirect Effect of the Financial Crisis 42
5. Discussion 45
5.1 Conclusion and Implications 45
5.2 Significance to the Field 49
5.3 Considerations 50
5.4 Recommended Future Research 52
Abstract
Disparities in the global economy were revealed in the year 2007 instigating the worst
financial crisis since the “Great Depression” of the 1930s. The financial crisis caused a severe downturn in the global economy and left the world in a perpetual debate on its root causes and implications. This paper narrowed in on the subject matter by investigating the effect of the financial crisis on entrepreneurial ventures’ financial structure and performance. The results presented in this paper suggest that an increased amount of financial resources are available to finance entrepreneurial ventures after the onset of the crisis. It is expected, though, that in the near future bank loans become scarcer imperiling entrepreneurial ventures’ growth ambitions and even their chance of survival. Entrepreneurs will be increasingly dependent on venture capital, or other means of financial services due to the shortage in bank loans. The sense of urgency increases when economic recovery takes place that leads to an increase in the demand for financial resources. Fortunately there is yet a lot of potential with venture capital or alternative sources of debt or equity to fund entrepreneurial ventures. Entrepreneurs will have to adapt their demand for financial services in order to survive and realize their growth ambitions.1
Keywords: Funds Flow Credit Crunch Financing Entrepreneurship Start Up JEL-Classification: E51 G32 L26 M13
1 Acknowledgements: I would like to wholeheartedly thank my supervisor, Dr. Tsvi Vinig, for steering me
towards a direction that proved to be challenging yet rewarding. A shared passion for entrepreneurial economics enabled a smooth process combined with enthusiasm and a common understanding of the relevance of the research topic. My student number at the University of Amsterdam is 5844584.
1. Introduction
Over six years after the onset of the global financial crisis that manifested in 2007 there is yet a perpetual debate among scholars, policy makers and practitioners alike on the current and future implications of this ambiguous phenomenon. There is a distinct need to get a better understanding of the subject matter whilst individuals do not seem to agree on the
consequences following from the financial crisis. Specifically, the disputes are on the nature and the severity of the adverse shock effects on the financial system. The financial system is defined as the totality of supply of and demand for financial services. The premise of this study is that it is imperative to fully comprehend the shock effects on the financial system in order to withstand or even counteract them.
The discussion continues in an attempt to get a better understanding of the
consequences of a malfunctioning financial system for the real economy. King and Levine (1993) argue that financial services stimulate economic growth by increasing the rate of capital accumulation and by improving the efficiency with which economies use that capital. Their statement suggests that economic growth is reliant on ventures’ ability to attain
financial services. In order to overcome the adverse shocks on the financial system, the resilience of the financial system has to be enhanced possibly even by total system reform. Structural measures can only be taken when there is a clear picture of the implications of the financial crisis on the supply and demand for financial services for corporate financing
purposes. The aim of such measures should be to enhance the robustness of the real economy. There is broad support for the notion that entrepreneurial ventures play a crucial role in the real economy. Conventional wisdom suggests that in case entrepreneurial ventures’ performance is affected by financing issues, subsequently economic growth is imperiled significantly. The task of attracting resources into a new venture is perhaps the greatest
challenge faced by entrepreneurs as the lack of both reputation and a track record creates a heightened perception of risk by potential resource providers (review by Gilbert et al., 2006). Corresponding with Berger and Udell (1998), this study defines entrepreneurial ventures as firms that are not older than four years. The relevance of the of entrepreneurial ventures’ performance for the real economy emphasizes the necessity to obtain a better understanding of the implications of the financial crisis on the supply of financial services for purposes of financing entrepreneurial ventures.
1.1 Statement of the Problem
With the availability of various sources of financial services, a choice has to be made by the entrepreneur when financing its venture. Shocks to the supply of these financial services imperil entrepreneurial ventures’ success or even the possibility to found a venture. Correspondingly, Quinn and Cameron (1983) state that organizational success tends to be defined in the entrepreneurial stage primarily by how well the organization meets criteria of resource acquisition, external support, growth, and readiness. The inability by entrepreneurial ventures to acquire financial resources more proficiently than their counterparts, in an already competitive market, might even lead to their demise.
The first problem this study explores relates to entrepreneurs’ inability to start a
venture due to changes in the accessibility of financial resources. Contradictory to individuals who apply for a position within an established firm, entrepreneurs are required to acquire resources in pursuing their ambition to found a venture. Financial services are a vital resource needed for the initial funding of a new enterprise. There are various sources of finance, both internal and external, that could serve as a resource for a starting entrepreneur. Internal finance, i.e. insider finance, is defined as financial resources supplied by the entrepreneur or its family and friends whilst external finance comprises of financial services supplied by other
individuals or organizations such as financial institutions or venture capitalists. Severe shocks to the supply of financial services could endanger entrepreneurs’ ability to start a venture.
The second problem this research examines relates to entrepreneurs’ inability to realize their growth ambitions as a result of the shock effects on the supply of financial resources. Ventures that do not generate sufficient funds to seize growth opportunities self-reliantly are dependent on external finance. The majority of the entrepreneurial ventures does not have a proven track record and is unlikely to be self-reliant when it comes down to generating funds in an attempt to realize venture growth. Severe shock effects on the supply of financial services jeopardize the realization of entrepreneurial ventures’ growth ambitions. Obtaining capital from external financing sources such as banks and venture capitalists are significant predictors of new venture sales growth (Lee et al., 2001). Gilbert et al. (2006) go even further by stating that unlike established firms, which have already achieved a level of viability and survival, new ventures are subject to a liability of newness where, in the absence of growth, their survival may be significantly reduced.
The third problem this study addresses pertains to entrepreneurs’ inability to achieve the optimal financial structure for their venture. Changes to the supply of financial services induce entrepreneurs to adapt their financing choices. Entrepreneurs might choose to acquire venture capital when bank loans are unattainable even though their preference was different. Capital decisions and the use of debt and equity at start-up have been shown to have
important implications for the operations of the business, risk of failure, firm performance, and the potential of the business to expand (Cassar, 2002).
Severe shocks on the supply of financial services force entrepreneurs to adapt their demand for financial services. Entrepreneurs might be unable to start a venture or realize growth ambitions when their demand for financial services is not met. A thorough
understanding of the crisis’ implications for entrepreneurial ventures’ financial structure and performance is needed to withstand the same implications and adapt financing behaviour.
1.2 Background and Need
There is a wide variety in studies exploring the optimal financing approach to fund an entrepreneurial venture. Schumpeter (1939) claims that financing of enterprise has been assigned logical priority in the sense that this is the only case in which lending and the ad hoc creation of means of payment are essential elements of an economic process the model of which would be logically incomplete without them. Corporate financing is a broadly studied topic in which most researchers assume a macroeconomic environment with a stable financial system supporting the real economy rather than an environment that finds itself in midst of a financial crisis. The world is suffering through the worst financial crisis since the 1930s, a crisis that has precipitated a sharp downturn in the global economy (Bernanke, 2009). A downturn of this magnitude is likely to have significant impact on the supply of financial services forcing entrepreneurs to adapt their demand for these services. Proficient financing decisions by entrepreneurs are required when starting a venture or realizing venture growth.
Different stages in the venture life cycle require different sources of finance.
Entrepreneurs who want to start a venture will encounter difficulties when their initial demand for financial services is not met. Berger and Udell (1998) state that initial insider finance is often required at the very earliest stage of a firm's development when the entrepreneur is still developing the product or business concept and when the firm's assets are mostly intangibles. Contradictory, Gompers (1994) argues that many entrepreneurs do not have sufficient funds to finance projects themselves, and they must therefore seek outside financing. These conflicting views on the subject matter corroborate the need to further explore the actual implications of the crisis on entrepreneurs’ ability to start a venture.
Shocks to the supply of financial services imperil entrepreneurs’ ambition to expand their venture. Fortunately, there are multiple sources of financial services that can substitute each other. Berger and Udell (1998) have broken down funding sources into four categories of equity and nine categories of debt. Many researchers narrow in on venture capital and bank loans when studying venture financing. This suggests that venture capital and bank loans are significant sources of funding for ventures. Referring to venture capital, MacMillan and Narasimha (1987) mention that entrepreneurial literature suggests that a sound business plan is essential if funding is to be secured from the venture capital community. Referring to bank loans, Schumpeter (1939) states that it is important for the functioning of the system that the banker should know, and be able to judge, what his credit is used for and that he should be an independent agent. Their statements suggest that overcoming informational opacity is
imperative if entrepreneurs want to be able to adapt their demand for financial services in an attempt to realize their growth ambitions.
A less than optimal financial structure of a venture leads to excessive costs or unnecessary loss of control over the venture. Johnson (1998) claims that in most capital structure models, an optimal debt level is determined by weighing various leverage-related costs against leverage-related benefits. Johnson (1997) claims that financing choices from among private and or public sources depend on firms’ asymmetric-information problems, implying that bank screening and monitoring can alleviate tensions between borrowers and lenders. Outweighing multiple financing opportunities helps entrepreneurs in applying the optimal financial structure.
Academic literature on entrepreneurial economics and financial economics
demonstrate in-depth research on financing entrepreneurial ventures as well as research on financial crises. The study by Berger and Udell (1998) portrays a framework comprising of different types of financial resources in relation to the financing needs of entrepreneurial
ventures. The last decades, researchers increasingly explored financial crises in their studies. Especially Bernanke (1983, 1988, 2009), who is now the head of the Federal Reserve
System2, has explored this research topic in-depth. There is, however, limited research on both research areas combined studying the effect of financial crises in relation to
entrepreneurial ventures’ financial structure and performance.
1.3 Purpose of the Study
The purpose of this study was to investigate the nature and the severity of the shock effects of the financial crisis on entrepreneurial ventures’ financial structure and performance. Shocks to the financial system intrinsically lead to changes in the supply of financial services. Meeting entrepreneurs’ demand for financial services is vital for them to start a venture or to realize growth ambitions. Few studies have ever investigated the implications of financial crises on entrepreneurial ventures’ financial structure and performance, let alone a study focusing on the most recent financial crisis.
A longitudinal study enabled an investigation of the implications of the financial crisis on entrepreneurial ventures’ financial structure and performance by collecting data on the subject matter before and after the onset of the financial crisis. The outcome of this study was
envisioned to enable entrepreneurs to adapt their demand for financial services when starting a venture or attempting to realize venture growth. In line with the aim of this study the main research question was posed:
• To what extent did the financial crisis, which manifested in 2007, have an impact on Dutch entrepreneurial ventures’ financial structure and performance?
2 The Federal Reserve System is the central bank of the United States. It was founded by Congress in 1913 to
provide the nation with a safer, more flexible, and more stable monetary and financial system. Over the years, its role in banking and the economy has expanded.
The main research question resulted into the following sub research questions:
• Did the amount of bank loans attainable by Dutch entrepreneurial ventures after the onset of the financial crisis differ significantly from the amount attainable before the onset of the crisis?
• Did the amount of venture capital attainable by Dutch entrepreneurial ventures after the onset of the financial crisis differ significantly from the amount attainable before the onset of the crisis?
• Did the number of newly founded ventures after the onset of the financial crisis differ significantly from the number after the onset of the crisis?
• Did the growth rates of entrepreneurial ventures after the onset of the financial crisis differ significantly from the growth rates before the onset of the crisis?
• Did significant differences in bank loans or venture capital have a significant impact on the number of newly founded ventures or their growth rates?
To provide a clear answer to the research questions, this study presents a review of the academic literature related to financial crises and financing entrepreneurial ventures and a combination thereof in the second chapter. The third chapter discusses the research method used to provide an answer to the research questions. The results of the analyses are presented in the fourth chapter after which the fifth and final chapter provides the conclusion and implications of this research.
2. Linking Literature on Financial Crises and Entrepreneurial Ventures
Disparities in the global economy caused severe shock effects on the financial system which in turn instigated fluctuations in the supply of financial services attainable for corporate financing purposes. Entrepreneurs too are affected when attempting to fund their venture whilst their demand for financial services is not met. The financial crisis could, subsequently, lead to financing issues for entrepreneurial ventures. A comprehensive understanding of the implications of the financial crisis is essential when attempting to identify and provide an answer to entrepreneurs’ financing dilemmas.
The review of the literature predominantly pertains to empirical studies within the fields of entrepreneurial economics and financial economics. The wide variety in social studies in the field of entrepreneurship, however, is excluded from the review. The review of the literature concentrated on studies related to financial crises aside from literature on financing entrepreneurial ventures. It is well established in the academic field of
entrepreneurial economics that financial services are essential for entrepreneurial ventures to be founded and to grow (Schumpeter 1939; Berger and Udell 1998; Michaelas et al. 1999; Carpentier and Suret 2006; La Rocca et. al. 2009). There is an ongoing discussion among scholars, however, on which financial resources are best suited for entrepreneurial ventures and to what extent. The study of financial crises and their implications for the real economy, a relatively new research area, has become increasingly popular since the 1980s (Bernanke,
1983; Fazzari et. al., 1988; Bernanke and Lown, 1992; King and Levine, 1993; Bernanke,
2009).
The review of the literature confirms that there is extensive research on financial crises, despite the relative newness of the research area, as well as research on financing entrepreneurial ventures. The same review verifies that limited research has been done on
both research areas combined by addressing the implications of financial crises for the supply of financial services accessible by finance entrepreneurial ventures. The review presented herein first discusses the global financial crisis that manifested in 2007. Second, the review explores research related to the shock effects of financial crises on the supply of financial services acquired by entrepreneurs when starting a venture. Similarly to the second section, the third section examines shock effects of financial crises only now concentrated on established entrepreneurial ventures that want to realize their growth ambitions. Finally, the fourth section explores research related to the entrepreneurial ventures’ optimal financial structure in relation to the financial crisis.
2.1 The Financial Crises of 2007 and the Supply of Financial Services
Despite that crises affecting the economy are not uncommon, there is a sense among experts and non-experts that the financial crisis we are currently experiencing is “different”. Mauldin and Tepper (2009) refer to the crisis as “the end game” claiming that the decades-long growth of debt in many countries from small manageable levels to excessive levels of debt is coming to an end. There is no coherent view on the specific causes and implications of the financial crisis, however it remains undisputed that the financial crisis does affect the financial system and therewith the supply of financial services. Correspondingly, Bernanke et. al. (1996) claim that an adverse shock or the natural end of an economic expansion may worsen financial conditions significantly, impairing firms’ and households’ access to credit at the same time the need for external funds may be rising.
In an attempt to investigate financial crises in-depth, scholars identify various
measurements such as interest-rate-spread volatility and banking system capital. It is assumed that financial crises should only be measured using variables that have a strong relation with stress in the financial system. A credit default swap (CDS) is an instrument, which is strongly
related to the robustness and the stability of the financial system. A CDS is similar to an insurance contract that compensates the buyer for losses arising from a default (Longstaff et. al., 2005). In a credit default swap, the party buying protection pays the seller a fixed
premium each period until either default occurs or the swap contract matures (Longstaff et. al., 2005). In return, if the underlying firm defaults on its debt, the protection seller is obligated to buy back from the buyer the defaulted bond at its par value (Longstaff et. al.,
2005). In principle, CDS should make financial markets more efficient and improve the allocation of capital because they make it possible for credit risk to reside with the investors who are best equipped to bear it and introduce greater transparency in the pricing of credit (Stulz, 2009). There has been a market for CDSs for over a decade suggesting that they can be used to measure the most recent financial crisis.
Multiple researchers have already studied the financial crisis of 2007 and its
implications for the supply of financial services accessible by ventures. Most studies included in this review validate each other’s results and the subsequent inference. Ivashina and
Scharfstein (2009) find that banks sharply curtail lending to the corporate sector during the crisis. Correspondingly, Campello et. al. (2009) survey corporate managers and find evidence that firms forego profitable investment opportunities during the crisis as a result of binding external financing constraints. Winckelmann & Sørensen (2011) specifically state that the collapse of Lehman Brothers3 resulted in large losses for many financial entities, which caused damaged investor confidence and a decline in the availability of credit. There is a consensus among researchers that the financial crisis has had an impact on external financial resources attainable to fund ventures. Most studies on the subject matter focus predominantly on financial services provided by financial institutions. There is, however, no clear and detailed understanding of the financial resources that can or cannot be acquired to finance
3 In September 2008 one of the oldest banks in the United States of America, Lehman Brothers, filed for
bankruptcy; this is a significant event and possibly the “face” of the financial crisis.
entrepreneurial ventures as a consequence of the crisis. Following this section of the review of the literature it is theorized in the first hypothesis of this study that:
• H1: The financial crisis has had a negative impact on the amount of bank loans provided to the corporate sector.
2.2 The Crisis and the Opportunity to Start a Venture
It is widely accepted in the academic literature within the field of entrepreneurial economics that financial services are imperative for entrepreneurs who want to start their venture. During this seed stage, entrepreneurs attempt to establish a venture from square one with only an idea in their head. According to Gompers (1994) entrepreneurs often develop products and ideas that require substantial capital during the formative stages of their companies’ lifecycles. He continues by stating that many entrepreneurs do not have sufficient funds to finance projects themselves, and they must therefore seek outside financing (Gompers, 1994).
An outline of the financial resources attainable by entrepreneurs before the onset of the crisis enables a better understanding of the implications of the financial crisis for the supply of financial services. The researchers Berger and Udell (1998) have developed a model depicting financial resources acquired by entrepreneurial ventures following a stage contingent process. Berger and Udell (1998) have broken down funding sources into four categories of equity and nine categories of debt (Berger and Udell, 1998). The four categories of equity are funds provided by: the principal owner, other sources such as family and friends, angels (high net worth individuals) and venture capital (Berger and Udell, 1998). The nine categories of debt are divided into three categories of funding provided by financial institutions, nonfinancial business and government sources and funding provided by individuals (Berger and Udell,
insider finance, i.e. funds provided by the start-up team, family, and friends prior to and at the time of the firm's inception, trade credit, or angel finance.
Various sources of finance, equity and debt, are attainable by entrepreneurs to fund their venture. Despite some conflicting views, the majority literature suggests that in general entrepreneurs are hardly dependent on external sources of funding when starting a venture. Entrepreneurs rely to a greater extent on insider finance suggesting that the financial crisis does not affect the opportunity for entrepreneurs to establish a venture. The self-reliance is also an indication that entrepreneurs are initially not forced to adapt their demand by
exploring different sources of financial services than anticipated. Following this section of the review of the literature it is theorized in the second and third hypotheses of this study that: • H2: The financial crisis has had no impact on the financial structure of entrepreneurial
ventures when founded.
• H3: The financial crisis has had no negative effect on the number of newly founded entrepreneurial ventures.
2.3 The Crisis and Entrepreneurial Ventures’ Growth Ambitions
A difficult and at the same time crucial stage emerges one or two years after the foundation of an entrepreneurial venture. During the start-up phase, the entrepreneurial venture is
increasingly dependent on the supply of external financial resources, whilst the challenge to obtain these financial services is perhaps greatest in this stage. Correspondingly, Cassar, (2004) states that capital decisions and the use of debt and equity at start-up have been shown to have important implications for the operations of the business, risk of failure, firm
performance, and the potential of the business to expand. This suggests that the ability for entrepreneurial ventures to realize growth ambitions is imperiled as a result of severe shock effects to the supply of financial services.
Unlike established firms, which have already achieved a level of viability and survival, new ventures are subject to a liability of newness where, in the absence of growth, their survival may be significantly reduced (review by Gilbert et al., 2006). This corresponds with Quinn and Cameron (1983) who claim that organizational success tends to be defined in the entrepreneurial stage primarily by how well the organization meets criteria of growth, resource acquisition, external support, and readiness. The financial capital a firm holds is known to influence the sales and employment growth performance of new firms (review by Gilbert et al., 2006). Correspondingly, Lee et al. (2001) claim that obtaining capital from external financing sources such as banks and venture capitalists are significant predictors of new venture sales growth. Aforementioned suggests that during the start-up phase
entrepreneurs have to realize venture growth not only to expand their venture but also to survive. The review shows that external funding sources are essential for entrepreneurial venture to grow. The task of attracting resources into a new venture is perhaps the greatest challenge faced by entrepreneurs as the lack of both reputation and a track record creates a heightened perception of risk by potential resource providers (review by Gilbert et al., 2006). This is contradictory with Fluck et al., (1997) who argue that informational opacity does not make it quite so difficult for young firms to obtain external finance, particularly debt from financial institutions, as is implied by the perceived wisdom about the financial growth cycle. Despite the disagreement between the researchers mentioned herein, most studies argue that attracting financial resources is challenging during the entrepreneurial phase due to the informational opacity.
As firms grow, they gain access to intermediated finance on the equity side (venture capital) and on the debt side (banks, finance companies, etc.) (Berger and Udell, 1998). Venture capitalists often invest in companies that have already received one or more rounds of angel finance (Berger and Udell, 1998). Conventional wisdom argues that bank or
commercial finance company lending would typically not be available to small businesses until they achieve a level of production where their balance sheets reflect substantial tangible business assets that might be pledged as collateral, such as accounts receivable, inventory, and equipment (Berger and Udell, 1998). Aforementioned suggests that new venture growth is jeopardized when suppliers of financial services, banks and venture capitalists, are
constrained and entrepreneurs’ demand for financial services cannot be met.
The theory argues that entrepreneurial ventures have to grow in order to survive. In realizing their growth ambitions, entrepreneurial ventures are dependent on external sources of finance. Most researchers claim that this is highly challenging for entrepreneurial ventures due to their informational opacity. This topic was explored assuming an economic
environment with a robust financial system and thus no shock effects to the supply of financial services. Bearing in mind the dependency on financial services in addition to the challenge to obtain them by entrepreneurs, severe shock effects to the supply of financial services endanger ventures’ growth and even survival unless entrepreneurs adapt their demand. Following this section of the review of the literature it is theorized in the fourth and fifth hypotheses of this study that:
• H4: The financial crisis has had a negative impact on the growth and survival of entrepreneurial ventures.
• H5: The financial crisis has had an impact on the financial structure of entrepreneurial ventures in the start-up phase.
2.4 The Crisis and Entrepreneurial Ventures’ Optimal Financial Structure
Entrepreneurial ventures’ optimal financial structure has always been a popular research area considering that it might give a better understanding why some new ventures experience higher growth rates than their counterparts. Exploring this research area whilst assuming a
financial crisis situation might lead to different perspectives on existing theories related to ventures’ optimal financial structure. Research on the subject matter often results in financing determinants that influence financing decisions.
Titman and Wessels (1988) denote in their study multiple attributes, derived from literature on capital structure, that affect a firm’s debt-equity choice, these are: asset structure, non-debt tax shields, growth, uniqueness, industry classification, size, earnings volatility, and profitability. According to Johnson (1997), in most capital structure models, an optimal debt level is determined by weighing various leverage-related costs against leverage-related benefits. Titman and Wessels (1988) claim that there is a negative relation between the short-term debt ratio and the firm size. The different studies suggest that there are various valid approaches when examining the optimal capital structure of a venture; the right approach depends on the research question.
In a study well before the financial crisis Korajczyk & Levy (2003) claim that
macroeconomic conditions and firm-specific factors drive variations in financing choices and that these variations differ with the degree of financial market access. This corresponds with Faulkender & Petersen (2006) who state that firms whose banks suffer shocks to their capital, independent of the firm's demand for capital, can affect the firm's financing. Firms facing financial constraints do not choose capital structure in the same manner as unconstrained firms (Korajczyk & Levy, 2003). In short, it seems constrained firms take what they can get Korajczyk & Levy, (2003). Looking at their characteristics, entrepreneurial ventures are likely to be financially constrained firms due to a lack in substantial cash reserves. Most researchers, who studied entrepreneurial ventures’ optimal financing structure, explored financing
determinants not assuming a situation whereby there are severe shock effects to the supply of financial services.
There are various determinants that influence financing choices by entrepreneurs. However, it remains challenging for them to acquire financial resources to realize an optimal capital structure considering that relatively few sources of finance are attainable by
entrepreneurs. This becomes increasingly problematic when there are shocks to the financial system affecting their financing decisions. It seems that in these times the focus is less on the optimal capital structure and more on attaining financial resources which ever are available.
2.5 The Link Between Financial Crises and New Ventures’ Financial Structure The last decades an increasingly number of researchers explored financial crises in their studies. Especially Bernanke (1983, 1988, 2009), who is now the head of the Federal Reserve System, has explored this subject matter in-depth. Almost without exception, researchers in the field study financial crises in relation to economical growth and therewith the real economy. Researchers find that financial crises have implications for the supply of financial resources available for corporates. To determine the implications for entrepreneurial ventures, a better understanding is needed of the financial resources that are acquired in a healthy macro economic environment i.e. a robust and stable financial system. The study by Berger and Udell (1998) examined the supply of different types of equity and debt acquired by entrepreneurial ventures following a stage contingent process resulting in a framework reflecting ventures’ financing needs. Their study strongly relates to research on the optimal capital structure of ventures and the financing decisions made by ventures. Korajczyk & Levy (2003) studied financing decisions in relation to macroeconomic conditions. Corresponding with other researchers, Korajczyk & Levy (2003) claim that macroeconomic developments have a direct impact on the financing decisions. Following this section of the review of the literature it is theorized in the sixth hypothesis of this study that:
• H6: The financial crisis exerts an indirect effect on entrepreneurial ventures’ performance through entrepreneurial ventures’ financial structure.
The review of the literature confirms that there is extensive research on financial crises as well as research on financing of entrepreneurial ventures. There is, however, limited literature on both research areas combined addressing the implications of financial crises for the supply of financial services for purposes of financing entrepreneurial ventures. It seems ambiguous that there is little research on the subject matter seeing as the substantial economic value of entrepreneurial ventures remains undisputed. By studying the impact of the financial crisis that manifested in 2007 in more detail, we might get a better understanding of the
implications for the supply of financial resources for purposes of financing entrepreneurial ventures. This study attempts to provide insight in the implications of the crisis for
entrepreneurial ventures’ financial structure and performance including alternatives to cope with the crisis.
3. Method
It is well established that financial crises intrinsically have an impact on the financial system. There is, however, little knowledge on the extent to which financial crises affect the supply of financial services for the purpose of financing entrepreneurial ventures. The financial crisis, which manifested in 2007, provides the opportunity to study this phenomenon in-depth. A better comprehension is needed for entrepreneurial ventures to cope with the financial crisis by preventing or overcoming financing issues. In order to explore the impact of the financial crisis, the research was designed in an attempt to answer the question as to what extent the financial crisis has had an impact on Dutch entrepreneurial ventures’ financial structure and performance.
This explanatory study followed a quantitative model employing an archival research strategy. The research design enabled a longitudinal study of venture financing before and after the onset of the financial crisis. Data were collected using four different sources of administrative records to study the effect of the financial crisis. These data enabled an exploration of the course of the financial crisis and entrepreneurial ventures’ financial structure and performance. The research design, together with the collected data, was aimed to answer the research question aside from testing the hypotheses.
3.1 Sample
This study was performed in the Netherlands focusing on entrepreneurial ventures based in the same region and registered with the Dutch Chamber of Commerce4. Convenience sampling, using archival data, was employed for all data samples. The archival data were
4 Dutch Chamber of Commerce is also known in Dutch as “De Kamer van Koophandel” is an independent yet
official organization for Dutch entrepreneurs. It has a complete trade register with Dutch ventures.
limited to those administrative records that were available and accessible by the researcher at the time of the research. Whereas most empirical studies on corporates’ financial structure focus on firms that have their financial data publically disclosed, this research explored entrepreneurial ventures’ financial structure of which financial data are usually undisclosed. Entrepreneurial ventures are often of a legal form for which there is no legal obligation, under Dutch law, to publically disclose their financial data. Financial data on entrepreneurial
ventures are therefore challenging to obtain; this is often referred to as “informational opacity” by researchers. To cope with the informational opacity, this research employed a different approach by obtaining archival data on the supply flow of financial resources i.e. bank loans and venture capital.
The first sample comprised of Dutch financial institutions, excluding the Dutch Central Bank5, which provided corporate lending to non-financial institutions, based in the Netherlands, between 2003 and May 2013. The second sample pertained to private equity / venture capital firms based in the Netherlands making investments between 1990 and 2012. This sample included branch offices located in the Netherlands with a non-Dutch mother company. The third sample encompassed entrepreneurial ventures registered with the Dutch Chamber of Commerce between 2004 and 2012 accounting for a population of 348,706 unique entrepreneurial ventures that were still active at the beginning of 2013.
3.2 Measures and Measurement Instruments
This research employed a longitudinal study in an attempt to explore the causal relationship between the financial crisis and entrepreneurial ventures’ financial structure and performance.
5 “De Nederlandsche Bank (DNB) and is the central bank of the
3.2.1 Credit default swaps and economical distress
The financial crisis serves as the predictor of entrepreneurial ventures’ financial structure and performance. The term financial crisis is elusive and is ipso facto an explanatory variable that is not directly observable and must therefore be measured using a proxy variable.
Corresponding with Longstaff et. al., (2005), this research employed data on CDSs to provide direct measures of financial stability. Data were collected on CDS premium prices, quoted as mid-prices6, to measure the financial crisis i.e. the independent variable. The CDS premium prices enabled an ex-post analysis of the financial crisis seeing as these data accurately depict the course of the economical stress in the underlying markets. The CDS rates fluctuate
simultaneously with the economical stability rather than predicting financial distress. The CDS premium prices are subsequently a lagging measure and do not allow for an ex-ante analysis of the financial crisis. Out of the various marketed CDSs, the 5-years euro CDS was selected and data were collected for the period between June 2004 and December 2012. This CDS type was deemed best suited considering that it is one of the CDSs that reflect the financial stability in the Eurozone7. This specific Eurozone-related CDS is a highly liquid asset compared to its counterparts, meaning that it is traded the most, and therefore depicts the market value more accurately. The Bloomberg8 database, made accessible by a Dutch
financial institution, was utilized to acquire these data. The 5-years euro CDS utilized for this research had the following code in the Bloomberg database ITRX EUR CDSI GENERIC 5Y Corp.
6
CDS mid-price is the average of the bid and ask price of a certain CDS
7 The Eurozone consists of those European Union countries, which have adopted the euro as their currency. 8 The Bloomberg database has historical, global coverage of equities, stock markets, commodities, futures,
currencies, options, bond markets, company financials, and economic data; for more details see
http://www.bloomberg.com
3.2.2 Bank loans and venture capital investments to finance ventures
Three proxy mediator variables were employed, as part of the research model, in an attempt to measure entrepreneurial ventures’ financial structure. Proxy variables were necessary seeing as the anticipated data on entrepreneurial ventures’ financial structure, measured through the nature and volume of financial resources attained to fund entrepreneurial ventures, could not be collected for this study. The first mediator variable measured corporate lending provided by Dutch monetary financial institutions, excluding the Dutch Central Bank, to Dutch ventures, excluding financial institutions, between 2003 and May 2013. Corporate lending comprises of loans provided for the purpose of venture financing. Archival data were retrieved from the database9 provided by the Dutch Central Bank. This measurable proxy variable was selected due to the assumed correlation with entrepreneurial ventures’ financial structure. The annual growth rates of corporate lending provided by Dutch financial
institutions were too measured aside from the actual amounts. Growth rates enable a comparison with other measures in the model on the severity of the impact of the financial crisis. The second and third proxy mediator variables measured venture capital investments made by firms based in the Netherlands, including branch offices based in the same region, between 1990 and 2012. These data pertained to venture capital investments in seed ventures i.e. the second mediator variable and investments in start-up ventures i.e. the third mediator variable. The EVCA defines seed investments as “financing provided to research, assess and develop an initial concept before a business has reached the start-up phase”. The EVCA defines start-up companies as “companies that are in the process of being set up or may have been in business for a short time, but have not sold their product commercially”10. Reflecting to the literature review in this study, a seed venture is perceived as an entrepreneurial venture
9
in the process of being founded whereas a start-up venture is considered to be an
entrepreneurial venture that has been established for a few years and has growth ambitions.
3.2.3 The number of newly founded ventures and their survival rates
Two proxy dependent variables were defined in an endeavor to measure entrepreneurial ventures’ performance. Proxy variables were required considering that the initially anticipated data on entrepreneurial ventures’ performance, measured through profit and growth rates, could not be gathered for this study. The first dependent variable measured the number of newly founded ventures in the Netherlands. Administrative records were collected with the Dutch Chamber of Commerce concerning the number of entrepreneurial ventures that were founded between 2004 and 2012. In light of this research it is assumed that an entrepreneurial venture is established once it has been registered with the Dutch Chamber of Commerce. The annual growth rates of the number of newly founded ventures were also measured aside from the actual number of ventures enabling a comparison with other measures on the severity of the impact of the financial crisis. The second dependent variable measured the survival rates of the entrepreneurial ventures that were identified with the first dependent variable. Here too administrative records were collected with the Dutch Chamber of Commerce. The data contained the number of one, two, three and four-year-old entrepreneurial ventures that discontinued between 2004 and 2012. It is assumed in this study that an entrepreneurial venture is discontinued once the Dutch Chamber of Commerce ascribes a venture that respective status. These two measurable proxy variables were employed because of the presumed correlation with entrepreneurial ventures’ performance. The measurement
Figure 1: Thesis’ conceptual model
The conceptual model represents the assumed interrelations (different paths) among the independent variable (IV) with the three mediator variables (MV1, MV2 and MV3) and the two dependent variables (DV1 and DV2) in addition to the anticipated relation between the mediator variables and the dependent variables.
3.3 The Validity and Reliability of the Measurement Instruments
In light of this study there were several considerations in relation to the validity and the reliability of the measurement instruments. There is a sense of ambiguity with regards to the causal direction between the CDS premium rates and distress of the underlying market. A decrease of the rates accelerates the flow of funds and vice versa, ergo an increase of the CDS rates might be the cause of financial distress. Despite the presumed ambiguity this
consideration must me taken into account when inferring the results. Another consideration with regards to the applicability of CDS rates was the lack in empirical evidence confirming that shocks to the financial system are the primary or sole cause of the increase in the CDS premiums. One or more influencers in the economic environment, aside from market distress, might be the cause of the rise and fall in CDS premium prices. In an attempt to enhance the validity of this measure, the maximum sample period was used during which CDSs were exposed to different economic environmental conditions. Herein also lies another
consideration which has to do with the relatively newness of the CDS market. Specifically, there has been a market only since 2004 for the 5-years euro CDS, which was used in this research. Despite the different considerations, CDS rates were deemed as an acceptable instrument seeing as various studies utilized the same measure in relation to the financial crisis. The CDS data were retrieved from the Bloomberg database, which was considered to be a reliable source yielding consistent data considering that the source is used by financial institutions all over the world.
The dataset with corporate lending provided by Dutch monetary financial institutions did not differentiate between types of ventures to which lending was provided. This
threatened the validity of the data seeing as this research focused specifically on
entrepreneurial ventures. Another consideration was that entrepreneurial ventures could also acquire bank loans provided by non-Dutch financial institutions; these data were not included in the dataset. The data were collected, compiled and publically disclosed by the DNB. There are internal and external stakeholders overseeing the reliability of these data. Their data collection and compiling procedures were deemed likely to ensure the reliability of the data.
The EVCA11 dataset, used to measure venture capital investments, is a comprehensive source of European private equity and venture capital activity data. The total set contains data on approximately 1,800 private equity and venture capital firms in Europe, though this
research was limited to approximately 100 firms in the Netherlands. Venture capital is in fact a subset of private equity with its own characteristics. The dataset, however, does not
distinguish between private equity and venture capital imperiling the validity of the data. It is likely that the selected data for this study relates to venture capital considering that
investments in entrepreneurial ventures are typically venture capital investments rather than private equity investments. The validity of the EVCA dataset is enhanced as a result of the detailed distribution of the data across the nature of the investments. This distribution enabled an analysis using specifically data on private equity investments in entrepreneurial ventures. Seeing as the data focused on the investors rather than the investees, it is not entirely certain that the investments were in Dutch entrepreneurial ventures. It is, however, highly likely that their investments were made in the Netherlands. The data were collected using annual pan-European surveys undertaken on behalf of the EVCA by PEREP_Analytics12. An independent Governing Body, comprising of various scholars, has been set up to govern
PEREP_Analytics. The governing body is, among others, responsible for defining robust processes of data collection, storage, processing and aggregation therewith ensuring the reliability of the data.
The review of the literature suggests that entrepreneurs establish their venture well in advance of the official registration with the Dutch Chamber of Commerce. This research, however, utilized a dataset with the number of newly founded ventures, and their
corresponding survival rates, without unregistered entrepreneurial ventures. It is unlikely
11 The EVCA stands for the European Private Equity & Venture Capital Association and provides rigorous and
comprehensive data on private equity and venture capital activity across Europe.
12 PEREP_Analytics is a fully functional, centralized non-commercial pan-European private equity database with
though that this discrepancy is a serious threat to the validity of the data seeing as corporate lending and venture capital are only acquired by legal entities. The data did not specify the respective legal form and the nature of the venture. It was therefore likely that the dataset contained newly registered ventures, such as subsidiaries, which actually did not qualify for this research. This limitation could not be overcome seeing as the data were not publically disclosed by the Dutch Chamber of Commerce but rather provided directly via email. This research was therefore reliant on the integrity of the information provided directly. This lack in transparency threatened the reliability of these data considering that there was no direct access to the data to confirm the consistency.
This longitudinal study aimed to explore interrelations between the financial crisis, entrepreneurial ventures’ financial structure and their performance. The main strength of a longitudinal research is the capacity it has to study change and development (Saunders et. al.,
2007). When generalizing this research, one has to bear in mind that this research focuses specifically on the Netherlands before and after the onset of the financial crisis that
manifested in the year 2007. The outcome of a similar research design might differ in other research settings i.e. different regions or different crises. Threats to the validity and reliability of the data have been taken into consideration when performing statistical analyses and inferring the subsequent results.
3.4 Data Collection and Procedures
The data were collected using archived administrative records from four different sources. First, the data related to CDS premiums were collected using the Bloomberg database. This web-based database has historical data on, among others, various types of CDS derivatives. The data were accessed using the license of a Dutch financial institution with the consent of the same institution. The researcher acquired relevant data by entering the code “ITRX EUR
CDSI GENERIC 5Y Corp.” in the Bloomberg database. These rates in euros were extracted directly from the database for the period between June 2004 and December 2012. The data on bank loans did not require a license but were retrieved using the freely accessible online database13 provided by DNB. Their website publically discloses various types of statistical data related to the Dutch economy, out of which relevant data14 for this study were selected and retrieved. Correspondingly, data pertaining to venture capital investments by Dutch firms were attained using the dataset made accessible by the EVCA. These data were publically disclosed on their web-based portal15 from which the data were downloaded. Fourth, the Dutch chamber of commerce provided data on newly founded ventures and their survival rates from their database. The researcher did not attain these data directly from their database but rather requested these data with the Dutch chamber of commerce who then compiled data from their database and disclosed the compiled data directly to the researcher.
3.5 Data Analysis
In constructing the research model the posed research question was considered in combination with the data that were collected. The sole purpose of the research model was to answer the research question, whether the financial crisis has had an impact on Dutch entrepreneurial ventures’ financial structure and performance, using the data collected in light of this study. The composed research model translated into the execution of statistical analyses using SPSS16. The research model was designed to enable an in-depth analysis of the direct and indirect implications of the financial crisis. The purpose of this research was to study significant effects of the financial crisis. The independent variable, the financial crisis, was
13 Dutch Central Bank web-based portal: http://www.statistics.dnb.nl/financieele-instellingen/banken/binnenlandse-bankbedrijf-monetair/index.jsp
14 Relevant data were included in the table “Kredietverlening door Nederlandse MFI's aan niet-financiële
bedrijven in Nederland, gecorrigeerd voor securitisaties en breuken”
15
ipso facto a binary variable i.e. a dummy variable. Using a dummy variable in the model was meant to analyse regression coefficients before and after the onset of the financial crisis (Equation 1).
Once the model had been constructed, the statistical tests were identified that were required to estimate the direct effects of the financial crisis. Data were grouped before and after the financial crisis. The Kolmogorov-Smirnov test did not lead to a measurable outcome for the grouped data before the onset of the crisis due to the small size of the sample (Table 1). It is can therefore not be determined whether the assumption of normality holds for the grouped data before the onset of the crisis. The Kolmogorov-Smirnov test for both groups combined, i.e. before and after the onset of the crisis, confirmed that data were significantly normally distributed (p < .05) for all measures except for the growth rate of newly founded ventures (table 1). However, the validity of the test outcomes is questionable considering the small sample sizes of the measures. The Levene's test for homogeneity confirmed that the variances of none of the measures differed significantly (Table 1). As with the Kolmogorov-Smirnov test, the validity of the outcome of the Levene’s test is uncertain considering the small sample sizes. Seeing as it is questionable whether the assumptions of parametric data truly hold, non-parametric tests were utilized to test for significant effects. The distributional assumptions of non-parametric tests are less restrictive compared to their counterparts and are, as a rule, better suited for small sample sizes compared to parametric tests. The
non-parametric Mann-Whitney test was deemed most appropriate for this study seeing as the test compares two conditions by ranking data allowing for the usage of small sample sizes. The downside of this test, however, is that by ranking data information is lost about the magnitude of differences between scores. Consequently these tests are less capable of finding an effect that genuinely exists compared to parametric tests. Considering that the parametric test assumptions were not indisputably violated, parametric tests were conducted to test for
significant effects in addition to the non-parametric tests. The premise is that the powerfulness of the outcome of the tests increases once the parametric and the non-parametric tests
corroborate each other.
The final statistical analysis pertained to a mediation analysis examining the indirect effect of the financial crisis on entrepreneurial ventures’ performance. Simple meditation enabled an evaluation of the presence, strength, and significance of the indirect effect exerted by the financial crisis. The mediation analysis could only be performed using a parametric test despite the violation of the parametric test assumptions.
4. Results
In an attempt to answer the question of whether the financial crisis has had an impact on Dutch entrepreneurial ventures’ financial structure and performance, this study utilized a model enabling an answer to this question. First, the course of the financial crisis is visualized in an endeavor to make this phenomenon less opaque. Second, the research began its
inferential analysis by conducting non-parametric tests to measure direct effects of the financial crisis. Non-parametric tests were utilized, as the parametric assumptions were violated. Specifically, a Mann Whitney test was used to determine the direct impact of the financial crisis on entrepreneurial ventures’ financial structure as well as their performance. Finally, a mediation analysis was performed to explore the indirect effect exerted by the financial crisis on entrepreneurial ventures’ performance through their financial structure.
4.1 Depiction of the Financial Crisis
The CDS premium prices were collected for each day in the sample period for which a market price was disclosed. The annual means and standard deviations characterise the dataset (Table 2). The purpose of the preliminary exploration of the data was to identify the onset of the financial crisis. The data were also captured in a line graph reflecting the course of the financial stress in the underlying markets visually between 2004 and 2012 (Figure 2).
Figure 2. Trend in price CDS premium prices
Retrospectively the peaks can be explained by specific events exposing imbalances in the economy and instigating stress in the financial market.17 Reflecting on all these events and the fluctuations of the CDS-rates, this research defines the beginning of the financial crisis as July 1, 2007 in accordance with Duchin et al. (2010). For analysis purposes the year 2007 pertains
17
The financial crisis timeline, published on http://www.theguardian.com/business/2012/aug/07/credit-crunch-boom-bust-timeline, describes significant events that relate to stress in the financial system. In August 2007 BNP Paribas froze of three of their funds, indicating that they had no way of valuing the complex assets inside them known as collateralized debt obligations (CDOs), or packages of sub-prime loans. In September 2007 the British bank Northern Rock borrowed large sums of money to fund mortgages for customers, and needed to pay off its debt by reselling (or "securitizing") those mortgages in the international capital markets; in February 2008 the bank was nationalized. In March 2008, JP Morgan bought out the investment bank Bear Stearns. In September 2008 the US government bailed out Fannie Mae and Freddie Mac, two significant firms that had guaranteed thousands of sub-prime mortgages. Later that same month, one of the oldest banks in the United States of America, Lehman Brothers, filed for bankruptcy. Again later that month, two more American banks collapsed viz. Washington Mutual and Wachovia. In October 2008, Iceland's three biggest commercial banks, Glitnir, Kaupthing, and Landsbanki, collapsed. In April 2010, the Greek debt was downgraded to junk and in May 2010 Greece was bailed out for the first time. In November 2010, European ministers agreed a bailout for Ireland. In May 2011, the ECB17 bailed out Portugal. In May 2011, Greece was bailed out for the second time. In November 2011, S&P downgraded US sovereign debt. In June 2012, the level of Spanish borrowing reached a record high.
to the group after the onset of the financial crisis considering the distinct increase in CDS rates in the same year.
4.2 Direct Effects of the Financial Crisis
The direct effects of the financial crisis were analysed for the period between 2004 and 2012, while the available data on both corporate lending and venture capital investments exceeded this time period. For consistency purposes, however, the time period between 2004 and 2012 was upheld with the inferential analyses ensuring that all variables were subject to the same macro-economic developments. Not to have any data go to waste, analyses were also conducted including collected data for the complete time period with available data.
Data on bank loans as well as venture capital investments in seed and start-up ventures were compared before and after the onset of the financial crisis (Table 3). The data on bank loans provided to Dutch ventures are visualized in a graph (Figure 3). The data on venture capital investments in start-ups are also captured in a graph (Figure 4).
The graph in figure 3 reflects the amount of bank loans provided by Dutch financial institutions to Dutch ventures for corporate financing purposes. There is a distinct increase between 2004 and 2012 of approximately 66% with a mean of 2,721,377 before and a mean of 3,868,094 after the onset of the crisis. The growth rate in the amount of bank loans provided had a mean of 5.30% before the onset of the crisis and a mean of 6.53% after the onset of the crisis. The total amount of venture capital investments in seed ventures were on average .39% of the total amount in private equity investments before the onset of the crisis and .35% after the onset of the crisis (Table 3). Data on venture capital investments in seed ventures for the year 2005, however, were missing. The total amount of venture capital investments in start-up ventures was on average 1.52% of the total amount in private equity investments before the onset of the crisis and 7.24% after the onset of the crisis (Table 3). Data on private equity in start-up investments for the year 2005 were not missing, however appears to be remarkably low. This, together with the fact that data on venture capital investments in seed ventures were missing, is an indication that the data for 2005, in an already small dataset, were likely incorrect.
The number of newly founded ventures between 2004 and 2012 and the related survival rates of the ventures were compared before and after the onset of the financial crisis (Table 4). The growth rate in the number of newly founded ventures was also compared after and before the onset of the crisis. The data on the number of newly founded ventures are visualized in a graph (Figure 5).
Figure 5. The number of newly founded ventures between 2004 and 2012
The number of newly founded ventures shows a distinct increase between 2004 and 2012 of approximately 114% with a mean of 68,750 before and a mean of 109,773 after the onset of the crisis. The growth rate of the number of newly founded ventures was 15.31% before the onset of the crisis compares to a rate of 8.56% after the onset of the crisis.
As the assumptions of the parametric tests were violated (Table 1) the Mann Whitney test was employed to analyse the direct effects of the financial crisis. This non-parametric equivalent of the independent t-test enabled an analysis of the differences before and after the onset of the financial crisis allowing for different participants in each of the two conditions. Calculated using the U statistic, the principle of the Mann-Whitney test is to rank data for each condition and to compare the sum of the ranked data. The assumptions of the Mann-Whitney test, being random samples from populations, independence within samples and the measurement scale is at least ordinal, hold for the collected data. The assumption of mutual independency between samples, however, does not indubitably hold for the samples. The notion is that the
combined groups of Dutch venture capitalists before and after the onset of the crisis, which are the source of the respective data, are not truly independent nor are they really dependent. It could well be that investments made by one could affect decisions made by the other. In order to cope with the uncertainty of this assumption, the non-parametric Wilcoxon signed-rank test, for which this assumption does not apply, was intended to be utilized aside from the Mann Whitney test. However, the data did not allow for an adequate Wilcoxon signed-rank test as the group before the onset of the crisis differs in size from the group after the onset of the crisis. The Wilcoxon signed-rank test assumes that data are paired and come from the same population, an assumption that is definitely violated. There was too little added value to conduct a Wilcoxon signed-rank considering the violation of this assumption.
The results of the non-parametric tests studying the direct effects of the financial crisis confirm whether direct effects are significant (Table 5 and 6). The amount of bank loans provided before the onset of the financial crisis (Mdn = 2,688,792) differed significantly (p < .05) from the amount provided after the onset of the financial crisis (Mdn = 3,959,495), U = 18.00, z = 2.32, p = .0238 and r = .77. The same test was performed for the entire period of available data and there too was a significant difference before and after the onset of the financial crisis (Table 5). The growth rate of the amount of bank loans provided before the onset of the financial crisis (Mdn = 5.30) proved to be not significantly (p < .05) different from the growth rate after the onset of the financial crisis (Mdn = 4.50), U = 1100, z = .516, p = .714 and r = .17. The significant effect on bank loans in combination with the lack of a significant effect on the growth rate does not support the first hypothesis (H1) stating that the financial crisis has had a negative impact on the amount of bank loans provided to the
corporate sector
Venture capital investments in start-ups before the onset of the crisis (Mdn = 37,551) differed significantly (p < .05) from investments after the onset of the financial crisis (Mdn =
111,020), U = 18.00, z = 2.32, p = .0238 and r = .77. The significant difference in venture capital investments in start-ups supports the fifth hypothesis (H5) stating that the financial crisis has had an impact on the financial structure of entrepreneurial ventures in the start-up phase. Venture capital investments in seed ventures, however, did not differ significantly before (Mdn = 8,302) and after the onset of the crisis (Mdn = 5,618), U = 5.00, z = -.333, p = .8571 and r = -.18. The same tests were conducted for the entire period with available data confirming no significant differences between investments before and after the onset of the financial crisis for both investments in seed ventures and start-up ventures (Table 5). The non-significance of venture capital investments in seed ventures supports the second hypothesis (H2) stating that the financial crisis has had no impact on the financial structure of
entrepreneurial ventures when founded.
Concerning the dependent variables, a significant (p < .05) difference was noted between the number of newly founded ventures before the onset of the crisis (Mdn = 69,478) and the number of ventures after the onset of the crisis (Mdn = 108,171), U = 18.00, z = 2.32, p = .0238 and r = .77. The growth rate of the newly founded ventures before the onset of the financial crisis (Mdn = 15.31), however, did not differ significantly (p < .05) from the growth rate after the onset of the crisis (Mdn = 13.33), U = 4.00, z = -.67, p = .643 and r = -.24. The financial crisis has had no negative effect on the number of newly founded entrepreneurial ventures. The significant increase in the number of newly founded ventures in combination with non-significant difference in new venture growth rates supports the third hypothesis (H3), which states that the financial crisis has had no negative effect on the number of newly founded entrepreneurial ventures. None of the survival rates showed a significant difference before and after the onset of the financial crisis. The insignificant effect does not support the fourth hypothesis (H4) stating that the financial crisis has had a negative impact on the growth and survival of entrepreneurial ventures.
