Public policy and the creation of active venture capital markets

Marco Da Rin (), Giovanna Nicodano and Alessandro Sembenelli ()

No 430, Working Paper Series from European Central Bank

Abstract: We study how public policy can contribute to increase the share of early stage and high-tech venture capital investments, thus helping the development of active venture capital markets. A simple extension of the seminal model by Holmstrom and Tirole (1997) provides a theoretical base for our analysis. We then explore a unique panel of data for 14 European countries between 1988 and 2001. We have several novel findings. First, the opening of stock markets targeted at entrepreneurial companies positively affects the shares of early stage and high-tech venture capital investments; reductions in capital gains tax rates have a similar, albeit weaker, effect. Second, a reduction in labor regulation creases the share of high-tech investments. Finally, we find no evidence of a shortage of supply of venture capital funds, and no evidence of an effect of increased public R&D spending on the share of high-tech or early stage venture capital investments.

Keywords: Venture Capital; Capital Gains Tax; Public R&D Expenditure; Barriers to Entrepreneurship; Stock Markets; Public Policy (search for similar items in EconPapers)
JEL-codes: G10 G24 H20 O30 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn, nep-ent, nep-fin, nep-fmk, nep-pbe and nep-tid
Date: 2005-01
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Related works:
Working Paper: Public Policy and the Creation of Active Venture Capital Markets (2004)
Journal Article: Public policy and the creation of active venture capital markets (2006)
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Persistent link: http://EconPapers.repec.org/RePEc:ecb:ecbwps:20050430

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