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Entrepreneurship and the Business Cycle: Stylized Facts from U.S. Venture Capital Activity

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Abstract

We consider US Venture Capital (VC) activity as a measure of entrepreneurship and study its relationship with the business cycle. This measure addresses some biases in alternative measures such as self-employment and business ownership that have been considered in previous literature. Despite the well-known volatility in VC activity, it remains an important source of funding for entrepreneurs engaging in innovative business creation. We document key stylized facts for VC entry (seed and start-up stage) and VC exit (late stage) at the aggregate and sectoral level. VC entry is more strongly correlated and is contemporaneous with the business cycle while VC exit lags the cycle by two quarters. There is strong evidence for a bi-directional causality between entrepreneurship and economic activity. A positive shock to VC activity has a positive effect on real GDP. Our findings can help inform policies designed to support entrepreneurship.

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  • Hashmat Khan & Pythagoras Petratos, 2016. "Entrepreneurship and the Business Cycle: Stylized Facts from U.S. Venture Capital Activity," Carleton Economic Papers 16-09, Carleton University, Department of Economics.
  • Handle: RePEc:car:carecp:16-09
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    References listed on IDEAS

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    Cited by:

    1. Jeremy Greenwood & Pengfei Han & Juan M. Sanchez, 2017. "Financing Ventures," Working Papers 2017-035, Federal Reserve Bank of St. Louis, revised Apr 2020.

    More about this item

    Keywords

    Entrepreneurship; Venture Capital; Business Cycles;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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