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Venture Capital and the Market for Talent during Booms and Busts

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  • Chris Yung

Abstract

I develop and test a model in which the characteristics of entrepreneurs and VCs are jointly determined by real investment opportunities. By inducing the entry of inept agents, booms inflate the dispersion in ability on both sides of the market. Consistent with these predictions, venture fund return data show that 1) new entrants in hot markets are associated with high cross-sectional dispersion in abnormal returns, and 2) the worst performing funds in the sample are disproportionately likely to be new entrants in hot markets.

Suggested Citation

  • Chris Yung, 2017. "Venture Capital and the Market for Talent during Booms and Busts," Review of Finance, European Finance Association, vol. 21(5), pages 1875-1899.
    • Handle: RePEc:oup:revfin:v:21:y:2017:i:5:p:1875-1899.
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    File URL: http://hdl.handle.net/10.1093/rof/rfw038
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    References listed on IDEAS

    as
    1. Roberto Pinheiro, 2018. "Venture capital and underpricing: capacity constraints and early sales," Annals of Finance, Springer, vol. 14(1), pages 1-47, February.
    2. Rafael Repullo & Javier Suarez, 2004. "Venture Capital Finance: A Security Design Approach," Review of Finance, European Finance Association, vol. 8(1), pages 75-108.
    3. Catherine Casamatta, 2003. "Financing and Advising: Optimal Financial Contracts with Venture Capitalists," Journal of Finance, American Finance Association, vol. 58(5), pages 2059-2085, October.
    4. Catherine Casamatta, 2003. "Financing and Advising: Optimal Financial Contracts with Venture Capitalists," Journal of Finance, American Finance Association, vol. 58(5), pages 2059-2086, October.
    5. Michael Ewens & Charles M. Jones & Matthew Rhodes-Kropf, 2013. "The Price of Diversifiable Risk in Venture Capital and Private Equity," The Review of Financial Studies, Society for Financial Studies, vol. 26(8), pages 1854-1889.
    6. Steven N. Kaplan & Per Strömberg, 2004. "Characteristics, Contracts, and Actions: Evidence from Venture Capitalist Analyses," Journal of Finance, American Finance Association, vol. 59(5), pages 2177-2210, October.
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    Cited by:

    1. Roberto Pinheiro, 2018. "Venture capital and underpricing: capacity constraints and early sales," Annals of Finance, Springer, vol. 14(1), pages 1-47, February.

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    More about this item

    Keywords

    Venture capital; Adverse selection; Information production;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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