Authors: Carmelo Reverte; María del Mar Sánchez-Hernández; Alfonso Rojo-Ramírez
Addresses: Department of Accounting and Finance, Technical University of Cartagena, C/Real, No. 3, E-30201 Cartagena, Spain ' Department of Accounting and Finance, Technical University of Cartagena, C/Real, No. 3, E-30201 Cartagena, Spain ' Department of Economics and Business, University of Almeria, La Cañada de San Urbano s/n, E-04120 Almería, Spain
Abstract: The aim of this paper is to deepen our understanding of the investment valuation process followed by venture capitalists (VCs) at the European level. Its contribution is two-fold. First, we shed light on the manner in which VCs estimate the investee company's value and operationalise the main variables involved in the practical application of the well-known discounted cash flow method. Second, we study whether the different degree of use of valuation methods across European countries may be explained by differences in institutional characteristics related to the underlying legal regime (i.e., English vs. German vs. French-based legal traditions). Using both univariate and multivariate analysis for a sample of 99 responses obtained from a survey addressed to VCs from the UK, France, Germany and Italy, we find that both legal systems and characteristics of VCs (i.e., experience, preferred investment stage, and main source of funds) do influence in the valuation methods used.
Keywords: venture capital investments; entrepreneurship; legal systems; Europe; discounted cash flow; DCF; investment valuation; institutional characteristics; UK; United Kingdom; France; Germany; Italy.
International Journal of Business and Globalisation, 2016 Vol.17 No.1, pp.83 - 110
Received: 18 Apr 2015
Accepted: 11 Jun 2015
Published online: 06 Jul 2016 *