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Moving Beyond the Valley of Death: Regulation and Venture Capital Investments in Early-Stage Biopharmaceutical Firms

Author

Listed:
  • Yujin Kim
  • Chirantan Chatterjee
  • Matthew J. Higgins

Abstract

Can regulation reduce risks associated with investing in early-stage firms? Using the passage of the European Orphan Drug Act (EU-ODA), we examine this question in the biopharmaceutical industry. We provide causal evidence that venture capitalists (VCs) are more likely to invest in early-stage firms operating in sub-fields disproportionately affected by EU-ODA. The switch to early-stage investments appears strongest among VCs that previously faced greater levels of information asymmetry. We also find that the level of syndication declined for early-stage investments and exit performance improved. We conclude discussing the implications of our findings for public policy, entrepreneurship and innovation.

Suggested Citation

  • Yujin Kim & Chirantan Chatterjee & Matthew J. Higgins, 2018. "Moving Beyond the Valley of Death: Regulation and Venture Capital Investments in Early-Stage Biopharmaceutical Firms," NBER Working Papers 25202, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:25202
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    Cited by:

    1. Matteo Aquilina & Giulio Cornelli & Marina Sanchez del Villar, 2024. "Regulation, information asymmetries and the funding of new ventures," BIS Working Papers 1162, Bank for International Settlements.

    More about this item

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics

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