Public Policy and the Creation of Active Venture Capital Markets

46 Pages Posted: 27 Apr 2005

See all articles by Marco Da Rin

Marco Da Rin

Tilburg University, Department of Finance; Tilburg Law and Economics Center (TILEC); European Corporate Governance Institute (ECGI)

Giovanna Nicodano

University of Turin - Department ESOMAS; Collegio Carlo Alberto; CEPR; EGCI; Netspar

Alessandro Sembenelli

University of Turin - Department of Economics and Financial Sciences G. Prato

Date Written: January 2005

Abstract

We study how public policy can contribute to increase the share of early stage and high-tech venture capital investments, thus helping the development of active venture capital markets. A simple extension of the seminal model by Holmstrom and Tirole (1997) provides a theoretical base for our analysis. We then explore a unique panel of data for 14 European countries between 1988 and 2001. We have several novel findings. First, the opening of stock markets targeted at entrepreneurial companies positively affects the shares of early stage and high-tech venture capital investments; reductions in capital gains tax rates have a similar, albeit weaker, effect. Second, a reduction in labor regulation creases the share of high-tech investments. Finally, we find no evidence of a shortage of supply of venture capital funds, and no evidence of an effect of increased public R&D spending on the share of high-tech or early stage venture capital investments.

Keywords: Venture Capital, Capital Gains Tax, Public R&D Expenditure, Barriers to Entrepreneurship, Stock Markets, Public Policy

JEL Classification: G10, G24, H20, O30

Suggested Citation

Da Rin, Marco and Nicodano, Giovanna and Sembenelli, Alessandro, Public Policy and the Creation of Active Venture Capital Markets (January 2005). ECB Working Paper No. 430; EFA 2004 Maastricht Meetings Paper No. 3701; IGIER Working Paper No. 270, Available at SSRN: https://ssrn.com/abstract=576884 or http://dx.doi.org/10.2139/ssrn.576884

Marco Da Rin

Tilburg University, Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Tilburg Law and Economics Center (TILEC)

Warandelaan 2
Tilburg, 5000 LE
Netherlands

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Giovanna Nicodano (Contact Author)

University of Turin - Department ESOMAS ( email )

Turin, 10134
Italy

HOME PAGE: http://https://www.carloalberto.org/person/giovanna-nicodano/

Collegio Carlo Alberto ( email )

Piazza Arbarello 8
Torino, Torino 10121
Italy
390116705006 (Phone)

HOME PAGE: http://https://www.carloalberto.org/person/giovanna-nicodano

CEPR ( email )

London
United Kingdom

EGCI ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Netspar ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Alessandro Sembenelli

University of Turin - Department of Economics and Financial Sciences G. Prato ( email )

C. so Unione Sovietica, 218 Bis
Torino, 13820-4020
Italy
+39 011 670 6059 (Phone)
+39 011 670 6062 (Fax)

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