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Financial System and Innovations-Determinants of Early Stage Venture Capital in Europe

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  • Christian Schröder

    (European Institute for International Economic Relations at the University of Wuppertal / Schumpeter School of Business and Economics)

Abstract

This paper highlights the role of financial development in producing innovative products and services. After a general overview of the function of the financial structure as well as financial development in realizing product and service innovations, this work examines a financial intermediary which is particularly specialized to finance high-tech innovations - the venture capitalist (VC). We employ a panel analysis to illustrate whether technical opportunities, taxes, stock market development, relative size of the banking sector, GDP growth and laterstage venture capital influence early stage venture capital investments. The empirical analysis was conducted in 15 European countries and looked at the period from 1995 to 2005. The results show that technical opportunities, size of the stock market and banking sector, interest rate growth and the amount of later-stage venture capital have a significant positive and corporate tax rate a negative impact on the amount of early s tage risk capital. The structure of the national financial system seems not to have a significant influence.

Suggested Citation

  • Christian Schröder, 2009. "Financial System and Innovations-Determinants of Early Stage Venture Capital in Europe," Schumpeter Discussion Papers sdp09004, Universitätsbibliothek Wuppertal, University Library.
    • Handle: RePEc:bwu:schdps:sdp09004
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    Cited by:

    1. Veysov, Alexander & Stolbov, Mikhail, 2011. "The impact of financial sector on innovation activity: theoretical background and new evidence from russian banking sector," MPRA Paper 38747, University Library of Munich, Germany.
    2. Khan, Muhammad Zubair & Khan, Zafir Ullah & Hameed, Affan & Zada, Shehnaz Sahib, 2021. "On the upside or flipside: Where is venture capital positioned in the era of digital disruptions?," Technology in Society, Elsevier, vol. 65(C).

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    Keywords

    Early Stage Venture Capital; Risk Capital; Financial System; Financing Innovations;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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