Phasing Out an Inefficient Venture Capital Tax Credit

35 Pages Posted: 14 May 2010

See all articles by Douglas J. Cumming

Douglas J. Cumming

Florida Atlantic University

Sofia Johan

Florida Atlantic University - Finance; Tilburg Law and Economics Center (TILEC)

Date Written: May 11, 2010

Abstract

In 2005, the Government of Ontario, Canada, announced the phase out of the Labour Sponsored Venture Capital Corporation (LSVCC) tax credit, which will be become effective in 2011. Some media attention has suggested this might lead to difficulty for Ontario entrepreneurs and emerging firms in raising capital. This study presents evidence from Ontario innovative healthcare firms that capital raising concerns are not related to the phasing out of the LSVCC tax credit, and this evidence is consistent with evidence of extreme underperformance of LSVCCs. However, amongst firms currently funded by LSVCCs, there is significant concern about the phase out of the tax credit, which is at least in part attributable to the terms within LSVCC shareholder agreements. Policymakers should account for firms currently funded by LSVCCs to efficiently facilitate the phase out of the tax credit.

Keywords: Entrepreneurship, Venture Capital, Tax Policy, Canada

JEL Classification: G24, G28, G32, G38, K22

Suggested Citation

Cumming, Douglas J. and Johan, Sofia A., Phasing Out an Inefficient Venture Capital Tax Credit (May 11, 2010). Journal of Industry, Competition and Trade, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1604460

Douglas J. Cumming (Contact Author)

Florida Atlantic University ( email )

777 Glades Rd
Boca Raton, FL 33431
United States

HOME PAGE: http://booksite.elsevier.com/9780124095373/

Sofia A. Johan

Florida Atlantic University - Finance ( email )

777 Glades Rd
Boca Raton, FL 33431
United States

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

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