Venture Capital, Entrepreneurship, and Regional Economic Growth

37 Pages Posted: 26 Aug 2008 Last revised: 6 Jul 2009

See all articles by Sampsa Samila

Sampsa Samila

University of Navarra, IESE Business School

Olav Sorenson

Yale School of Management

Date Written: July 6, 2009

Abstract

Using a panel of U.S. metropolitan areas from 1993 to 2002, we find that an increase in the local supply of venture capital (VC) positively affects (i) the number of firm starts, (ii) employment, and (iii) aggregate income. Our results remain robust to a wide variety of specifications, including ones that address potential endogeneity in the supply of venture capital. The magnitudes of the effects, moreover, imply that venture capital stimulates the creation of more firms than it directly funds. That result appears consistent with either of two mechanisms: One, would-be entrepreneurs that anticipate a future need for financing more likely start firms when the supply of capital expands. Two, companies funded by venture capital may transfer tacit knowledge to their employees thereby enabling spinoffs, and may encourage both their own employees and others to become entrepreneurs through demonstration effects.

Keywords: Venture capital, financial intermediaries, entry, employment, wage bill

JEL Classification: G24, L26, O43, R11

Suggested Citation

Samila, Sampsa and Sorenson, Olav, Venture Capital, Entrepreneurship, and Regional Economic Growth (July 6, 2009). Available at SSRN: https://ssrn.com/abstract=1183576 or http://dx.doi.org/10.2139/ssrn.1183576

Sampsa Samila (Contact Author)

University of Navarra, IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

Olav Sorenson

Yale School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

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