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Explaining Cross-Country Variations in Venture Capital Investments: Theory and Empirical Evidence

Explaining Cross-Country Variations in Venture Capital Investments: Theory and Empirical Evidence
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Year:    2004

Author:    Schertler, Andrea

Credit and Capital Markets – Kredit und Kapital, Vol. 37 (2004), Iss. 3 : pp. 297–328

Abstract

This paper investigates why venture capital investments substantially vary across countries. Using a general equilibrium model, I show that the development of venture capital finance depends on the dominance of the banking market because bank finance determines a lower boundary of firms’ user costs of capital. Moreover, this model shows that the level of venture capital investments is affected by the venture capitalists’ costs of management support and monitoring services and the price for raising new funds from uninformed capital providers. Using dynamic panel techniques and a data set of 16 European countries, I test the implications of the model. I find, inter alia, that the lending rate has a positive and significant impact on early-stage investments. (JEL G24, O16, 041)

Journal Article Details

Publisher Name:    Global Science Press

Language:    Multiple languages

DOI:    https://doi.org/10.3790/ccm.37.3.297

Credit and Capital Markets – Kredit und Kapital, Vol. 37 (2004), Iss. 3 : pp. 297–328

Published online:    2004-03

AMS Subject Headings:    Duncker & Humblot

Copyright:    COPYRIGHT: © Global Science Press

Pages:    32

Author Details

Schertler, Andrea

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Section Title Page Action Price
Andrea Schertler: Explaining Cross-Country Variations in\rVenture Capital Investments:\rTheory and Empirical Evidence 297
I. Introduction 297
II. Basic Condition for Venture Capital Markets 299
1. Production of Products 300
2. The Mode of Financing 301
a) Repayment in the Steady State 302
b) When Do Entrepreneurs Choose Venture Capital Financing? 303
c) Separation Between Banks and Venture Capitalists 304
III. What Determines the Level of Venture Capital Investments? 305
1. Consumer Behavior 306
2. Steady-State Number of Enterprises 306
3. The Level of Venture Capital Investments 308
4. The Functioning of Venture Capital Markets 309
a) The Internal Functioning 310
b) The External Functioning 311
c) Towards an Empirical Model 312
IV. Empirical Analysis 313
1. Recent Literature 313
2. Methodology 315
3. Description of the Data Set 316
4. Estimation Results 320
V. Summary 324
References 326
Summary: Explaining Cross-Country Variations in Venture Capital Investments: Theory and Empirical Evidence 327
Zusammenfassung: Zur Erklärung von Länderunterschieden in den Venture-Capital-Investitionen: Theorie und empirische Evidenz 327
Résumé: Comment expliquer les différences nationales des investissements de venture capital: évidence théorique et empirique 328