Abstract
Armstrong, Dávila, Foster, and Hand (“ADFH”) use a proprietary venture capital database of revenue and profit projections submitted by young firms seeking financing to attempt to address a number of questions related to forecasts by managers of early stage, venture-backed, private entrepreneurial firms. The proprietary dataset together with the creative use of a “historically-grounded conditional projections” methodology are the most interesting features of ADFH’s study. However, these same aspects give rise to empirical design constraints that the study does not fully overcome. In addition, there are numerous leaps of logic required to arrive at some of ADFH’s conclusions and there are alternative explanations for ADFH’s findings that have not been entirely refuted. This leaves the reader with some doubt as to whether all of ADFH’s conclusions are fully substantiated. Nevertheless, the evidence presented makes an interesting contribution to our understanding of the forecasting behavior of young, private, rapidly growing, VCbacked firms, and provides some natural economic and methodological leads into further studies of these issues.
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Notes
In contrast, the previously referenced labor economics papers report separate and detailed regression results for each of their relevant labor groups. For example, the studies of Blinder (1973) and Oaxaca (1973) report the detailed results of each of their separate regressions (e.g., white males, black males, white females, black females, etc) that include the coefficient estimates on 35 to 45 explanatory variables.
Campbell et al. (2001) do not separately model the biotech industry, so the third of ADFH’s identifiable sectors’ firm-specific volatilities are not explicitly considered here.
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Demers, E.A. Discussion of “biases in multi-year management financial forecasts: Evidence from private venture-backed U.S. companies”. Rev Acc Stud 12, 217–225 (2007). https://doi.org/10.1007/s11142-007-9027-2
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DOI: https://doi.org/10.1007/s11142-007-9027-2