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The Determinants of Venture Capital in Europe — Evidence Across Countries

Author

Listed:
  • Elisabete Félix
  • Cesaltina Pires
  • Mohamed Gulamhussen

Abstract

This article analyses the determinants of European venture capital activity. The main novelty of our work is in accounting for the idiosyncrasies of the European venture capital market. In particular, we investigate whether the size of the merger and acquisition market (M&A) is important in explaining venture capital. Moreover, our work is the first that analyses the impact of the degree of information asymmetry at the macro level, the direct impact of the level of entrepreneurial activity and the impact of the unemployment rate on venture capital activity. We use aggregate data from 23 European countries for the period 1998–2003 to estimate panel data models with fixed and random effects. Our results reveal that the size of the M&A market and the market-to-book ratio have a positive impact on venture capital activity whereas the unemployment rate influences the venture capital market negatively. These results highlight the importance of the exit environment and of the degree of asymmetric information for the venture capital market. Copyright Springer Science+Business Media, LLC 2013

Suggested Citation

  • Elisabete Félix & Cesaltina Pires & Mohamed Gulamhussen, 2013. "The Determinants of Venture Capital in Europe — Evidence Across Countries," Journal of Financial Services Research, Springer;Western Finance Association, vol. 44(3), pages 259-279, December.
    • Handle: RePEc:kap:jfsres:v:44:y:2013:i:3:p:259-279
    DOI: 10.1007/s10693-012-0146-y
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Venture capital; Europe; Venture capital determinants; IPO; M&A; Unemployment rate; C23; G24; G32; G34; M13;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

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