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The Determinants of Venture Capital: Additional Evidence

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  • van Pottelsberghe de la Potterie, Bruno
  • Romain, Astrid

Abstract

This paper attempts to identify and evaluate the main determinants of venture capital (VC). We develop a theoretical model where macroeconomic conditions, technological opportunity, and the entrepreneurial environment affect the demand and supply of VC. The quantitative results, based on a panel dataset of 16 OECD countries from 1990 to 2000, show that VC intensity is pro-cyclical. Interest rates affect more the demand side of VC (entrepreneurs) than the supply side. Indicators of technological opportunity, such as the stock of knowledge and the number of triadic patents affect positively and significantly the relative level of VC. Labour market rigidities reduce the impact of the GDP growth rate and of the stock of knowledge, whereas a minimum level of entrepreneurship is required in order to have a positive effect of the available stock of knowledge on VC intensity.

Suggested Citation

  • van Pottelsberghe de la Potterie, Bruno & Romain, Astrid, 2004. "The Determinants of Venture Capital: Additional Evidence," Discussion Paper Series 1: Economic Studies 2004,19, Deutsche Bundesbank.
  • Handle: RePEc:zbw:bubdp1:2164
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    File URL: https://www.econstor.eu/bitstream/10419/19486/1/200419dkp.pdf
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    References listed on IDEAS

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    1. 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.
    2. Romain, Astrid & Pottelsberghe de la Potterie, Bruno van, 2003. "The Economic Impact of Venture Capital," IIR Working Paper 03-20, Institute of Innovation Research, Hitotsubashi University.
    3. N. Berger, Allen & F. Udell, Gregory, 1998. "The economics of small business finance: The roles of private equity and debt markets in the financial growth cycle," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 613-673, August.
    4. Manigart, Sophie & De Waele, Koen & Wright, Mike & Robbie, Ken & Desbrieres, Philippe & Sapienza, Harry J. & Beekman, Amy, 2002. "Determinants of required return in venture capital investments: a five-country study," Journal of Business Venturing, Elsevier, vol. 17(4), pages 291-312, July.
    5. Jeng, Leslie A. & Wells, Philippe C., 2000. "The determinants of venture capital funding: evidence across countries," Journal of Corporate Finance, Elsevier, vol. 6(3), pages 241-289, September.
    6. José Martí Pellón & Marina Balboa, 2001. "Determinants Of Private Equity Fundraising In Western Europe," Working Papers. Serie AD 2001-15, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    7. van Pottelsberghe Bruno & Guellec Dominique, "undated". "From R & D to Productivity Growth: the Sources of Knowledge - Spillovers and their Interaction," EcoMod2002 330800067, EcoMod.
    8. Thomas Hellmann & Manju Puri, 2002. "Venture Capital and the Professionalization of Start-Up Firms: Empirical Evidence," Journal of Finance, American Finance Association, vol. 57(1), pages 169-197, February.
    9. Samuel Kortum & Josh Lerner, 2000. "Assessing the Contribution of Venture Capital to Innovation," RAND Journal of Economics, The RAND Corporation, vol. 31(4), pages 674-692, Winter.
    10. Hellmann, Thomas & Puri, Manju, 2000. "The Interaction between Product Market and Financing Strategy: The Role of Venture Capital," Review of Financial Studies, Society for Financial Studies, vol. 13(4), pages 959-984.
    11. James M. Poterba, 1989. "Venture Capital and Capital Gains Taxation," NBER Chapters,in: Tax Policy and the Economy, Volume 3, pages 47-68 National Bureau of Economic Research, Inc.
    12. Schertler, Andrea, 2003. "Driving Forces of Venture Capital Investments in Europe: A Dynamic Panel Data Analysis," Kiel Working Papers 1172, Kiel Institute for the World Economy (IfW).
    13. Engel, Dirk, 2002. "The Impact of Venture Capital on Firm Growth: An Empirical Investigation," ZEW Discussion Papers 02-02, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    14. Paul Gompers & Josh Lerner, 2001. "The Venture Capital Revolution," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 145-168, Spring.
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    Citations

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    Cited by:

    1. Kerstin Bernoth & Roberta Colavecchio & Magdolna Sass, 2010. "Drivers of Private Equity Investment in CEE and Western European Countries," Working Paper / FINESS 3.5, DIW Berlin, German Institute for Economic Research.
    2. repec:diw:diwfin:diwfin03050 is not listed on IDEAS
    3. Schertler, Andrea & Tykvová, Tereza, 2011. "Venture capital and internationalization," International Business Review, Elsevier, vol. 20(4), pages 423-439, August.
    4. Ant Bozkaya & William R. Kerr, 2014. "Labor Regulations and European Venture Capital," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 23(4), pages 776-810, December.
    5. Schertler, Andrea & Tykvová, Tereza, 2012. "What lures cross-border venture capital inflows?," Journal of International Money and Finance, Elsevier, vol. 31(6), pages 1777-1799.
    6. Herrera-Echeverri Hernán & Haar Jerry & Estevez-Bretón Juan Benavides, 2014. "Foreign Investment, Institutional Quality, Public Expenditure, and Activity of Venture Capital Funds in Emerging Market Countries," Global Economy Journal, De Gruyter, vol. 14(2), pages 1-36, April.
    7. Jürgen Janger & Johann Scharler & Alfred Stiglbauer, 2006. "The Potential Growth Prospects of the Austrian Economy — Methods and Determinants," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 24-52.
    8. Samila, Sampsa & Sorenson, Olav, 2010. "Venture capital as a catalyst to commercialization," Research Policy, Elsevier, vol. 39(10), pages 1348-1360, December.
    9. Ant Bozkaya & William R. Kerr, 2009. "Labor Regulations and European Private Equity," Working Papers CEB 09-055.RS, ULB -- Universite Libre de Bruxelles.
    10. Karim Chaabouni, 2011. "Determinants And Legitimacy Of Venture Capital Financing: An Empirical Verification," Anadolu University Journal of Social Sciences, Anadolu University, vol. 11(1), pages 27-38, January.
    11. Hirukawa, Masayuki & Ueda, Masako, 2008. "Venture Capital and Innovation: Which is First?," CEPR Discussion Papers 7090, C.E.P.R. Discussion Papers.
    12. Arturo Haro-de-Rosario & María del Carmen Caba-Pérez & Leonardo Cazorla-Papis, 2016. "The impact of venture capital on investee companies: evidence from Spain," Review of Managerial Science, Springer, vol. 10(3), pages 577-600, July.
    13. Márcia Siqueira Rapini, 2009. "Sistemas financeiros e o financiamento à inovação: algumas reflexões para o Brasil," Textos para Discussão Cedeplar-UFMG td367, Cedeplar, Universidade Federal de Minas Gerais.
    14. Tykvová, Tereza & Schertler, Andrea, 2011. "Cross-border venture capital flows and local ties: Evidence from developed countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 51(1), pages 36-48, February.
    15. Daniel Hain & Sofia Johan & Daojuan Wang, 2016. "Determinants of Cross-Border Venture Capital Investments in Emerging and Developed Economies: The Effects of Relational and Institutional Trust," Journal of Business Ethics, Springer, vol. 138(4), pages 743-764, November.
    16. Andrea Schertler, 2007. "Knowledge Capital and Venture Capital Investments: New Evidence from European Panel Data," German Economic Review, Verein für Socialpolitik, vol. 8, pages 64-88, January.

    More about this item

    Keywords

    Venture Capital; Technological Opportuniy; Entrepreneurship; Labour Market Regidities;

    JEL classification:

    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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