Monetary Policy and Venture Capital Markets

Cristiano Bellavitis, Christian Fisch and Silvio Vismara

Review of Corporate Finance, 2023, vol. 3, issue 4, 627-662

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).

Keywords: Entrepreneurial finance; venture capital; supply; negative interest rates; central bank rates; monetary policy (search for similar items in EconPapers)
JEL-codes: E1 G24 L26 O17 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:now:jnlrcf:114.00000053

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