DP13098 Can Government Intervention Make Firms More Investment-Ready? A Randomized Experiment in the Western Balkans
|Author(s):||Ana Paula Cusolito, Ernest Dautovic, David J. McKenzie|
|Publication Date:||August 2018|
|Keyword(s):||entrepreneurship, equity investment, Innovation, Investment readiness, randomized controlled trial, start-ups|
|JEL(s):||L26, M13, M2, O12|
|Programme Areas:||Development Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=13098|
Many innovative start-ups and SMEs have good ideas, but do not have these ideas fine-tuned to the stage where they can attract outside funding. Investment readiness programs attempt to help firms to become ready to attract and accept outside equity funding through a combination of training, mentoring, master classes, and networking. We conduct a five-country randomized experiment in the Western Balkans that works with 346 firms and delivers an investment readiness program to half of these firms, with the control group receiving an inexpensive online program instead. A pitch event was then held for these firms to pitch their ideas to independent judges. The investment readiness program resulted in a 0.3 standard deviation increase in the investment readiness score, with this increase occurring throughout the distribution. Two follow-up surveys show that these judges' scores predict investment readiness and investment outcomes over the subsequent two years. Treated firms attain significantly more media attention, and are 5 percentage points (p.p.) more likely to have made a deal with an outside investor, although this increase is not statistically significant (95 confidence interval of -4.7 p.p., +14.7p.p.).