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Venture Capital and the Market for Talent during Booms and Busts

Chris Yung

Review of Finance, 2017, vol. 21, issue 5, 1875-1899

Abstract: I develop and test a model in which the characteristics of entrepreneurs and VCs are jointly determined by real investment opportunities. By inducing the entry of inept agents, booms inflate the dispersion in ability on both sides of the market. Consistent with these predictions, venture fund return data show that 1) new entrants in hot markets are associated with high cross-sectional dispersion in abnormal returns, and 2) the worst performing funds in the sample are disproportionately likely to be new entrants in hot markets.

Keywords: Venture capital; Adverse selection; Information production (search for similar items in EconPapers)
JEL-codes: G32 G34 G14 D82 (search for similar items in EconPapers)
Date: 2017
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