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Monetary Policy and Venture Capital Markets

Author

Listed:
  • Cristiano Bellavitis
  • Christian Fisch
  • Silvio Vismara

Abstract

We assess the impact of monetary policy (i.e., central bank interest rates) on the activity of venture capitalists (VC). Using data from 31 countries from 2004 to 2019, we find that VC firms' fundraising activity increases when interest rates become negative. We explain this finding by referring to the principal-agent relationship between general and limited partners of VC firms in combination with behavioral finance arguments. Specifically, we identify three channels pertaining to a legal motivation (i.e., legislative hurdles and litigation risks), a liquidity motivation (i.e., substitution effect relative to other asset classes), and behavioral biases (i.e., mental accounting, conservatism, disposition effect, or prospect theory).

Suggested Citation

  • Cristiano Bellavitis & Christian Fisch & Silvio Vismara, 2023. "Monetary Policy and Venture Capital Markets," Review of Corporate Finance, now publishers, vol. 3(4), pages 627-662, September.
    • Handle: RePEc:now:jnlrcf:114.00000053
    DOI: 10.1561/114.00000053
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    More about this item

    Keywords

    Entrepreneurial finance; venture capital; supply; negative interest rates; central bank rates; monetary policy;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models

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