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Under What Conditions Do Venture Capital Markets Emerge?

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  • Andrea Schertler

Abstract

Venture capital activity differs considerably across countries. Venture capital markets are highly developed in few countries, while these markets are almost nonexistent in many other countries. This paper examines the conditions that have to be fulfilled for liquid venture capital markets to emerge. Using a general equilibrium model, two necessary conditions are identified. First, value added by venture capitalistsÂ’ active involvement must be high compared to the costs of management support. Second, the number of high-technology enterprises demanding venture capital must exceed a critical level. The paper discusses how differences in financial and innovation systems affect these two conditions.

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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1119.

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Length: 22 pages
Date of creation: Jul 2002
Date of revision:
Handle: RePEc:kie:kieliw:1119

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Related research

Keywords: Management support; high-technology enterprises; venture capital finance;

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References

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  1. Schertler, Andrea & Stolpe, Michael, 2000. "Venture mania in Europe: Its causes and consequences," Kiel Discussion Papers 358, Kiel Institute for the World Economy (IfW).
  2. Black, Bernard S. & Gilson, Ronald J., 1998. "Venture capital and the structure of capital markets: banks versus stock markets," Journal of Financial Economics, Elsevier, vol. 47(3), pages 243-277, March.
  3. Allen, Franklin & Gale, Douglas, 1995. "A welfare comparison of intermediaries and financial markets in Germany and the US," European Economic Review, Elsevier, vol. 39(2), pages 179-209, February.
  4. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
  5. Andrea Schertler, 2001. "Venture Capital in Europe's Common Market: A Quantitative Description," Kiel Working Papers 1087, Kiel Institute for the World Economy.
  6. Mayer, Colin, 2001. "Financing the New Economy. Financial Institutions and Corporate Governance," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  7. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
  8. Ralf Becker & Thomas Hellmann, 2003. "The Genesis of Venture Capital - Lessons from the German Experience," CESifo Working Paper Series 883, CESifo Group Munich.
  9. Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, vol. 84(3), pages 488-500, August.
  10. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  11. Megginson, William L & Weiss, Kathleen A, 1991. " Venture Capitalist Certification in Initial Public Offerings," Journal of Finance, American Finance Association, vol. 46(3), pages 879-903, July.
  12. Brav, Alon & Gompers, Paul A, 1997. " Myth or Reality? The Long-Run Underperformance of Initial Public Offerings: Evidence from Venture and Nonventure Capital-Backed Companies," Journal of Finance, American Finance Association, vol. 52(5), pages 1791-1821, December.
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Cited by:
  1. Christian Schröder, 2009. "Financial System and Innovations: Determinants of Early Stage Venture Capital in Europe," EIIW Discussion paper disbei167, Universitätsbibliothek Wuppertal, University Library.
  2. Christian Schröder, 2009. "Financial System and Innovations-Determinants of Early Stage Venture Capital in Europe," Schumpeter Discussion Papers sdp09004, Universitätsbibliothek Wuppertal, University Library.

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