The effect of economic policy uncertainty on start-up financing and success: Evidence from the European start-up market

50 Pages Posted: 8 Jul 2021 Last revised: 9 Sep 2021

See all articles by Rouven Litterscheidt

Rouven Litterscheidt

Ludwig-Maximilians-Universität München, LMU Munich School of Management

Date Written: September 6, 2021

Abstract

This paper investigates the effect of economic policy uncertainty on the financing and success probability of start-ups in the European venture capital market. Specifically, our results show that venture capital investors are less likely to engage in financing activities and start-ups are less likely to have a successful exit under high economic policy uncertainty. Even after controlling for economic uncertainty and industry trends, our results remain stable and significant. However, we highlight the heterogeneity of these effects depending on the venture capital type. We point out the special role of governmental venture capital as it bridges the financing gap for start-ups under high levels of economic policy uncertainty. Still, governmental venture capital investments seem detrimental to a start-up's successful exit probability despite higher economic policy uncertainty. Government policies should be adjusted accordingly, considering the substantial influence of economic policy uncertainty on the start-up market.

Keywords: Economic policy uncertainty; start-up; venture capital; governmental venture capital; government policies

JEL Classification: G24; G28; G34; H11

Suggested Citation

Litterscheidt, Rouven, The effect of economic policy uncertainty on start-up financing and success: Evidence from the European start-up market (September 6, 2021). Available at SSRN: https://ssrn.com/abstract=3875314 or http://dx.doi.org/10.2139/ssrn.3875314

Rouven Litterscheidt (Contact Author)

Ludwig-Maximilians-Universität München, LMU Munich School of Management ( email )

Schackstraße 4
Munich, DE Bavaria 80539
Germany

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
132
Abstract Views
472
Rank
390,253
PlumX Metrics