DP4794 Active Financial Intermediation: Evidence on the Role of Organizational Specialization and Human Capital

Author(s): Laura Bottazzi , Marco Da Rin , Thomas F Hellmann

Publication Date: December 2004

Keyword(s): financial intermediation , specialization , human capital

JEL(s): G20

Programme Areas: Financial Economics , International Macroeconomics

Link to this Page: www.cepr.org/pubs/dps/DP4794.asp

Financial intermediaries can choose the extent to which they want to be active investors, providing valuable services like advice, support and corporate governance. We examine the determinants of the decision to become an active financial intermediary using a hand-collected dataset on European venture capital deals. We find organizational specialization to be a key driver. Venture firms which are independent and focused on venture capital alone get more involved with their companies. The human capital of venture partners is another key driver of active financial intermediation. Venture firms whose partners have prior business experience or a scientific education provide more support and governance. These results have implications for prevailing views of financial intermediation, which largely abstract from issues of specialization and human capital.